Unilever has underperformed since Jope took over from Paul Polman in January 2019. The shares have generated a total return of 13% since his arrival, while rival Nestlé SA has generated a total return of around 45% on the same period. Shares of Unilever rose nearly 4% on Monday before falling slightly.
Earlier this year, Nelson Peltz’s activist investor Trian Fund Management bought a stake in Unilever, and in July Peltz joined Unilever’s board of directors. Trian said in a statement that he was “sorry to learn of Alan Jope’s decision to retire” and that Peltz looked forward to being part of the recruiting process.
Jope set a difficult tenure in motion by not giving up on the goal of achieving a 20% operating margin by 2020 as soon as he took office. The target was set after Kraft Heinz Co.’s short-lived siege in February 2017, when it tried to buy the company for $143 billion. Clinging to the target meant Unilever was constrained when it needed to accelerate sales growth – which eluded Jope, despite the company generating almost 60% of sales in faster expanding emerging markets .
It has also been criticized for its emphasis on social purpose. Expecting Hellmann’s mayonnaise and PG Tips to do more than flavor sandwiches and make tea was meant to encourage younger shoppers to pay more for Unilever products. While this could be an effective marketing strategy, poor communication has left the company open to criticism from fund manager and major shareholder Terry Smith.
Investor concern grew in January over Unilever’s proposed 50 billion pound ($54.6 billion) bid for GSK’s consumer arm, now listed as Haleon Plc. Shareholders were unconvinced by the strategy, the price and whether management could make the deal work.
To make matters worse, Mark Schneider, CEO of Nestlé, struck a string of shrewd divestitures and successful deals, like acquiring Starbucks Corp. sold in supermarkets for $7 billion in 2018.
Given Unilever’s lackluster performance, the board should appoint an external CEO.
Dave Lewis, who led Tesco between 2014 and 2020, was put forward as a candidate for the job ahead of Jope’s appointment. He is now president of Haleon. He still has strong popularity among investors, so Unilever might try to persuade him to return to a senior position.
Another option would be to resurrect the idea of a deal with Haleon, with Lewis leading the expanded group. The combination was not completely without merit. He would have married Haleon’s strong consumer brands, such as Panadol painkillers and Sensodyne toothpaste, with Unilever’s portfolio, including Dove and Vaseline. Shareholders might be more convinced if Lewis is at the helm.
Alternatively, there could be senior executives within Nestlé, Procter & Gamble Co., Reckitt Benckiser Group Plc and US consumer giants such as PepsiCo Inc. who could be elevated to the position. A complication is that Reckitt is also looking for a new CEO after Laxman Narasimhan’s move to Starbucks.
Whoever gets the job should have the freedom to scrap Unilever’s conglomerate structure. Jope is already turning ice cream, beauty and personal care into independent businesses, as he reorganizes the group into five units. His successor should go further. He or she should at least split the group into its food and non-food businesses, with potential for further portfolio refinement from there.
Jefferies analysts say beauty and personal care businesses could have an enterprise value of around 111 billion euros ($107.1 billion), with food and refreshments worth around 48 billion euros. That’s just ahead of Unilever’s current enterprise value, but there could be other upsides to a spin-off. For example, the food branch would benefit from greater concentration as a stand-alone unit, freed from the shadow of toiletries and cosmetics.
The danger is if there is a long pause before Jope’s successor is named. That could see Unilever drift amid cautious consumers and runaway inflation. The board, led by Chairman Nils Andersen, and with Peltz’s backing, should waste no time making a nomination and then helping the new CEO take drastic action.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
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