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It’s hard not to feel sorry for Unilever. It was carrying on, minding its own business, being a successful consumer staples firm, and then Kraft Heinz came along. The defeat of the bid has resulted in a flurry of analysts examining the company and determining how best the firm should proceed to avoid being snapped up by another rival.
As a result, Unilever has engaged in number of initiatives to help make it into a more dynamic company that will retain the confidence of investors. Changes to pay structure, in order to give directors a bigger stake in business direction, have been set, along with a business review meant to unlock the value Kraft Heinz supposedly discerned in the dual-listed giant. Over the past 20 years, Unilever shares have returned an average of 9% per annum, comfortably outperforming many major stock indices. Many investors would be justified in asking why the firm should go through disruptive change just because Kraft made a lunge that was ill thought out and ultimately unsuccessful.
There is no need to do much, particularly since restructuring and acquisitions will come at heavy costs, such as banker fees and investment that will hit margins. Fund managers love activity, and there will be, without a doubt, more calls for Unilever to look at selling off some of its brands in a bid to become more specialised. But that leaves it at the mercy of changes in fashion. Like a well-diversified portfolio of assets, Unilever’s broad array of brands allows it to ride out difficult times, while its geographical spread, particularly in emerging markets, means it is not overexposed to economic difficulties in one part of the globe.
Unilever is, apparently, now ‘in play’ as a bid target. But an acquirer will need hefty financial firepower, along the lines available to Kraft Heinz and its collaborators. Few other firms will have the muscle, and those that do probably already have a fair slice of the market and thus will see their bid fall foul of the regulator. Thus, Unilever executives should probably look to ride out the storm, and not do too much to change their existing business.
Too often businesses are consumed by the need to change, to do something. I would refer over-keen managers to the words of legendary trader, Jesse Livermore, who said ‘It wasn’t my thinking that made me my big money, it was my sitting tight.’ ‘Sitting tight’ is not a bad strategy, particularly for a firm like Unilever.