A P&G-Style Makeover Is a Big Ask for Unilever

Unilever UL 9.89%

has the same problems as Procter & Gamble faced four years ago and now has the same active investor on its board. But another time has continued.

On Tuesday, Unilever said Trian Partners founder Nelson Peltz will take up a seat on the company’s board from July. After months of speculation that the activist had bought a stake in Unilever, the company confirmed that his hedge fund owns a 1.5% stake, which is now worth around $1.6 billion. Mr. Peltz will join Unilever’s compensation committee and may want changes to pay incentives. At P&G, he criticized the bonus targets for top executives because sales growth was below the industry average.

Shares of Unilever rose 7% in morning trading. Investors can expect that an active campaign at the UK company will produce a P&G-style increase in the share price. Shares of the American company have nearly doubled in value since early 2018 when Mr. Peltz got his seat on the board and when he stepped down three and a half years later.

Trian’s record at the final major European target in the field is greater. The fund disclosed its stake in bottled water maker Evian Danone in November 2012, when the company’s shares were trading at around €48, or $51. After predicting that the stock would hit €78 within two years, the fund cashed in February 2015 when it was valued at around €60.

The presence of an activist investor could hasten the elimination of Unilever’s less attractive brands. Earlier this year, CEO Alan Jope said he was open to selling the company’s food brands to fund the acquisition of GlaxoSmithKline.‘S

consumer healthcare business — although this approach was eventually phased out.

Selling underperforming beauty brands to Coty helped improve P&G’s sales growth, but the biggest boost came from bettering its existing brands. Between 2015 and 2019, stopping the decline in market share resulted in 2.4 percentage points of sales growth, based on Bernstein estimates. Unilever has been making progress here. In the first quarter of 2022, 58% of its business gained market share, up from 53% in the fourth quarter of 2021.

This will be difficult to maintain when consumer incomes are reduced. Private labels are winning over customers in Europe, where inflation currently stands at 8.1 percent. Big brands need to raise prices to protect their profit margins, but as a result their products are less competitive. According to Nielsen data, Danone, Unilever and Nestlé all lost market share to brand stores in Europe in the four weeks to April 24.

Unilever has a particular challenge because of where it sells. It generates 60% of the group’s sales in emerging markets, where inflation is higher than in developed countries and middle incomes are lower. P&G does half of its sales in North America, where consumer spending is now proving resilient.

The board refresh is good news for Unilever investors, but the company is starting to turn around in a much tougher market than P&G.

Write letter for Carol Ryan at carol.ryan@wsj.com

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Appears June 1, 2022, print edition as ‘P&G-Style Makeover Is A Big Ask For Unilever.’

https://www.wsj.com/articles/a-p-g-style-makeover-is-a-big-ask-for-unilever-11654006926?mod=rss_markets_main A P&G-Style Makeover Is a Big Ask for Unilever

Edmund DeMarche

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