Consumer goods giant Unilever announced the appointment of billionaire investor activist Nelson Peltz to its board on the heels of a restructuring plan proposed earlier this year.
“Peltz’s appointments as a non-executive director and as a member of its compensation committee are expected to be confirmed on or before July 20,” Unilever said May 31.
In December, it was reported that Trian Partners, Peltz’s activist hedge fund, had acquired a significant stake in Unilever. Following the reports, Unilever said in January that its business would be restructured into five business groups – beauty and wellbeing, personal care, home care, nutrition, and ice-cream.
The proposed model would reduce senior management roles by 15 percent and junior management roles by 5 percent, equivalent to about 1,500 roles globally.
Speculation had been rife that Unilever’s cost-cutting measures and structural revamp had been prompted by Trian’s acquisition of a stake in the company. Peltz is known for bringing about operational changes in portfolio companies including Mondelēz International and Procter & Gamble.
Who is Peltz?
Peltz, 79, is an activist US investor and founding partner of Trian, a New York-based alternative investment management fund. His net worth was $1.6 billion as of June 1, according to Forbes.
Trian owns stakes in Bank of New York Mellon, DuPont and food conglomerate Mondelēz. Peltz is known to push for changes in portfolio companies, mostly towards simplification of business and reassessing strategy.
In 2018, he battled with P&G over a board seat and managed to get one. Although he quit the P&G board last year, he has been credited with bringing in positive changes at the company.
“Peltz has a good track record of effecting positive change at other consumer companies such as P&G, Mondelēz and Kraft Heinz. In 2017, Peltz called for a slew of changes at P&G, after which he joined its board in March 2018. P&G's stock price has almost doubled since then,” Edelweiss said in a note.
Trian manages funds that hold interests in about 37.4 million ordinary shares of Unilever, constituting approximately 1.5% of Unilever’s share capital, the company said while announcing Peltz’s appointment.
What will Peltz’s appointment mean for Unilever and Hindustan Unilever?
Analysts said Peltz’s presence on the Unilever board will mean several more changes in the company. Peltz will most likely follow his playbook of cost and business optimisation.
According to Edelweiss, there is a likelihood that the Unilever business might be split into different smaller businesses and some brands may even be sold. Peltz had introduced similar changes in P&G and the company had been split into independent operating units.
However, Edelweiss indicated that the Indian unit may not be impacted as Hindustan Unilever’s businesses have performed well and derive synergies from being part of one company.
“One recent example is its tea business, which was retained in India,” it added.
There will be a focus on margin improvement for both the parent company and Hindustan Unilever, Edelweiss said.
The key aspects to watch out for the parent company, indicated Edelweiss, would be transformation/change in corporate culture, remuneration (this can impact Hindustan Unilever too), a reset of strategic initiatives or focus areas, and a relook at the M&A strategy.
Why are these changes needed?
Unilever’s performance has been subdued for a few quarters and the company has faced pressure from investors to report better margins and sales growth. The failed attempt to buy GlaxoSmithKline’s consumer products business for the third time had also disappointed investors.
“With Peltz’s entry, the market expects a simpler structure, focus on core, and some changes in culture and remuneration at Unilever,” the Indian brokerage said.
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