Business

Terry Smith launches new attack on Unilever management

Unilever’s top shareholder, Terry Smith, has called the company’s rejected bids for GSK’s consumer healthcare division a “near-death experience” and appealed to the board. Leadership focuses on improving existing business rather than on major acquisitions.

Fundsmith founder and head of research, Julian Robins, made the point in a letter to investors in the £29 billion wealth management firm on Thursday, a A copy of this letter was seen by the Financial Times. In it, they criticized management, strategy, communication with shareholders and “inclination of the corporation”.

The letter read: “It seemed to us that Unilever’s management’s response to Unilever’s underperformance was completely meaningless and now they have tried to add more buying and selling. and major mergers. What could go wrong?”

Unilever’s share price has underperformed rivals in recent years and is slightly below where it was when the group pushed back a bid from Kraft Heinz in 2017. Its then-CEO The firm, Paul Polman, described its successful fight against the Kraft Heinz takeover as a “near death experience” – Smith and Robins comments sounded on Thursday.

“It appears that Unilever’s attempt to acquire the GSK consumer business is now dead instead of the value of our investment in Unilever,” they wrote in the letter.

Mauritius-based Smith is the outspoken founder of Fundsmith, whose successful long-term track record has helped him attract a large following of retail investors. As of Wednesday, Fundsmith owned a £814 million position in Unilever, making it the company’s 13th largest shareholder.

Unilever, maker of Dove soap, Hellmann mayonnaise and Magnum ice cream, on Monday signaled that it is shifting strategy to pursue major acquisitions. But the letter from Smith and Robin says: “We believe Unilever management – or someone else if they don’t want the job – should definitely focus on bringing the performance of the existing business to the next level. necessary before accepting any further challenges. . ”

The letter follows Smith’s annual customer visit last week in which he criticized Unilever’s chief executive, Alan Jope, and senior management for undermining sustainability credentials with business operating costs.

“One company felt they had to define the purpose of Hellmann mayonnaise in our opinion lost plot,” he wrote.

Unilever’s three bids for the GSK unit, 32% owned by Pfizer, late last year culminated in a mostly cash offer of £50 billion. But the pursuit of it effectively ended on Wednesday with a statement said the company would not increase its offer beyond that price, which GSK declined.

The outcry came when shareholders began publicly opposing the deal. Flossbach von Storch, a top 10 shareholder, told the Financial Times they would “strongly oppose” it in a vote and called on management to drop its bid.

GSK has been preparing to spin off its consumer healthcare division into a new independent company this year. Smith and Robins question why investors shouldn’t just wait and buy stock during an initial public offering because “Unilever buying it would involve paying a control fee for the valuation. expected IPO price”.

They added that although Unilever says bids are based on financial metrics, including return on capital, “letting management discuss that number is like a dentist pulling out a tooth. ”

Smith and Robins relentlessly called for an immediate leadership change at Unilever but accused them of playing ‘what Warren Buffett considers ‘gin rummy’ management. . . discard their least promising card(s) each round in the hope that they will turn over better cards”.

“They should probably look into whether the problem might not be with the hands/business but with the players/management,” they added.

On Monday, Unilever defended its bid to acquire painkiller Advil and vitamin Centrum, calling it a “strong strategic fit”. It said it plans to focus on health, beauty and hygiene through potential “major acquisitions” accompanied by selling off lower-growth businesses.

Unilever was one of the Fundsmith Equity Fund’s five worst performers last year. Overall, the fund has grown 22.1% in 2021, trailing only its benchmark MSCI World index, which is up 22.9% in sterling with dividends reinvested. Since its launch in November 2010, the Sponsors Worker Equity Fund has recorded an annualized return of 18.6%.

Unilever was not immediately available for comment.

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