‘Rotation of our portfolio is part of upgrading into higher growth spaces’: Unilever hints at food operation sell offs
GSK confirmed Unilever had approached it with three proposals, the most recent being £50 billion, which GSK said “fundamentally undervalued” the division.
In the update this morning (17 January), Unilever confirmed GSK’s consumer healthcare division would be “a strong strategic fit”. It added it wants to significantly expand its footprint in health, beauty and hygiene. These categories offer “higher rates of sustainable market growth”, it said, “with significant opportunities to drive growth through investment and innovation, and by leveraging Unilever’s strong presence in emerging markets”.
On a call with media, Unilever CEO Alan Jope signalled that parts of Unilever’s foods and refreshment business could be up for sale, adding that that any divestments would be needed to help pay down Unilever’s debt after any acquisition.
“We have an excellent Food & Refreshment business with global leading positions,” Jope said. “You will notice that it has performed well during the pandemic. But it is true that Food & Refreshment’s long-term growth profile has been below other parts of the portfolio. What we're trying to land today is the setting out of our future strategic direction into health, beauty, and hygiene. We have no immediate plans to separate F&R but rotation of our portfolio is part of upgrading into higher growth spaces.”
Analysts took the update as a clear sign that the company is looking to sell its low growth food brands to fund acquisitions in other high-growth areas. They added Unilever might have to rise as much as £55 billion to successfully acquire GSK’s consumer healthcare division.
“Food is clearly the area they want to get out of,” Bernstein analyst Bruno Monteyne told FoodNavigator. "They don't mention food. Food is a huge part of the history of Unilever. So, it's clear the asset they're referring to with regards to divesting assets, it's food."
The update also came after Terry Smith, founder of the Fundsmith Equity Fund, which owns £888 million of Unilever stock, blamed the consumer goods group for his fund’s underperformance last year as it trailed behind its benchmark.
In his annual letter to investors in Fundsmith, whose main fund is valued at £28.9 billion, he wrote: “Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”
Unilever also announced late last year it is selling its developed markets tea business for €4.5bn. According to some industry pundits, this deal represented ‘an important first step’ in portfolio rationalisation.