Unilever/Trian: Nelson will up the ante and clear out the pantry

Nelson Peltz, having secured a seat on Unilever’s board, must be itching to draw on his well-thumbed playbook for reviving sluggish consumer product companies. The US activist investor earned his stripes at food groups Heinz and Mondelez and, most pertinently, at Unilever’s big US peer Procter & Gamble.

Peltz, through his New York hedge fund Trian, can claim prior success. Before P&G, Trian claimed to have raised the earnings per share of portfolio companies 780 basis points above the S&P 500 annually, achieving total shareholder returns 880bp higher than the S&P 500. While total returns during its tenure at P&G fell short of the US stock market benchmark they were handily ahead of the consumer sub-index.

Unilever has many of the hallmarks of P&G in 2017, when Peltz first took aim at the latter. The maker of Pampers nappies and Tide laundry pods was bloated, growth was sluggish and it was ceding market share to smaller, more innovative rivals. Unilever’s own sales fell on a volume basis in the first quarter. Its traditional matrix management structure hampers accountability.

That makes it ripe for Trian’s prescriptions — which broadly matched those set out by P&G’s incoming boss — to improve and speed up decision-making. Investors therefore sent Unilever shares up 7 per cent.

Two factors should help Peltz. One is an atmosphere friendlier than at P&G, where he eventually won an acrimonious proxy battle. Unilever has, in contrast, ushered the activist on board despite a relatively small exposure of 1.5 per cent. Controversy may loom, however, if restructuring conflicts with Unilever’s much-vaunted ESG credentials.

Second, Unilever is already part way down the road. The maker of Dove shampoo and Hellmann’s mayonnaise is dismantling its intersecting geographic and category silos. It is splitting the company into five category-focused segments and eliminating 15 per cent of senior management positions. Each new group will have responsibility for its strategy, growth and profitability.

Peltz cannot wave a magic wand, however, and economic trends are against him. P&G did not have to contend with massive input inflation or the cost of living crises that imperil sales. The market is less conducive to disposals. Unilever, with its far broader pantry, needs to do some shelf-clearing.

The veteran consumer industry investor can help with striking deals. There is scope for him to work productively with a management eager to regain investors’ trust following its abortive £50bn bid for GSK’s consumer division.

The Lex team is interested in hearing more from readers. Please tell us what you think of Peltz’s prospects at Unilever in the comments section below.

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