A leading Unilever shareholder has called the company’s failed £50bn offer for GSK’s consumer healthcare division a “near-death experience” and said management should focus on improving its core business – or step down.
Terry Smith, the founder of Fundsmith, lambasted Unilever in a “postmortem” letter to investors in his £29bn asset management business.
The letter comes a day after Unilever said it would not increase its bid for a fourth time, leaving GSK free to float its consumer arm as planned this summer.
“[This is] about a near death experience as it now appears that Unilever’s attempt to purchase the GSK consumer business is now thankfully dead rather than the value of our investment in Unilever,” said the letter, which was co-written by Fundsmith’s head of research, Julian Robins.
Fundsmith is the seventh largest active shareholder in Unilever, the owner of numerous household brands, including Marmite and Dove soap.
In a wide-ranging critique of Unilever and its management, Smith and Robins attacked the company’s long-term performance, accused it of not engaging with shareholders, having a flawed mergers and acquisitions strategy, as well as a “penchant for corporate gobbledegook”.
“Unilever’s performance has been poor,” the letter said. “It is the worst performer by a considerable margin amongst the multinational FMCG [fast-moving consumer goods] companies we have owned and not just in terms of share price but also in terms of sales growth.”
The credit rating agency Fitch on Tuesday said a debt-fuelled purchase of the GSK consumer healthcare division could trigger a “multi-notch downgrade” of Unilever’s rating, which could make it more expensive for the company to borrow and force some investors to dump the shares.
Unilever’s share price has lagged rivals in recent years and are down 30% since 2019, when Alan Jope took over as chief executive. Its market value has fallen by a fifth during the last 12 months, even as the FTSE 100 has gained 13%.
“It seems to us that Unilever management’s response to its poor performance has been to utter meaningless platitudes to which it has now attempted to add major M&A activity,” the letter said. “What could possibly go wrong.”
Last week, Smith, whose fund holds a position worth more than £800m in Unilever, used his annual letter to clients to attack the Jope’s strategy of boosting the environmental, social and governance credentials of the company rather than focusing on core business performance.
Smith said on Thursday: “We believe Unilever management – or someone else if they don’t want the job – should surely focus on getting the operating performance of the existing business to the level it should before taking on anymore challenges.”
Fundsmith said Unilever investors should just wait to buy a piece of GSK Consumer Healthcare when it floats, rather than own the business outright by paying a higher price through a takeover.
