New Unilever CEO has a chance to revisit mega-M&A
LONDON, Feb 25 (Reuters Breakingviews) - Unilever's (ULVR.L), opens new tab new CEO may want to awaken animal spirits at the seller of Dove soap and Axe deodorant. On Tuesday, opens new tab, the $139 billion London-listed group announced that CEO Hein Schumacher is leaving the business after less than two years in charge. His replacement, finance boss Fernando Fernandez, is tasked with revitalising a company with a so-so portfolio of brands. One option may be to revisit a megadeal in the mould of Unilever's attempted Haleon (HLN.L), opens new tab purchase in 2022, opens new tab.
Schumacher's departure looks both abrupt and messy. The Dutch executive is the company's third CEO in roughly six years. Unilever has whipsawed between championing environmental, social and governance goals under previous bosses Paul Polman and Alan Jope, to doing the opposite under Schumacher, who said the company should no longer be 'force fitting' purpose on all the group's brands.
For now, it looks like Fernandez will carry on with Schumacher's plan to cut costs and focus the company's marketing spend on 30 so-called 'power brands', referring to relatively well-known products like Comfort fabric softener, Hellmann's mayonnaise, and Knorr stock cubes. However, he may need some fresh thinking before long. Unilever is struggling to boost the volume of goods it sells. Schumacher warned earlier this month, opens new tab that there was a slowdown of market growth in 2024 that would continue in the near term.
The consumer-goods group's valuation reflects investors' worries. Unilever trades at 17 times forward earnings - a discount to both Danone (DANO.PA), opens new tab and Nestlé (NESN.S), opens new tab, compared with a premium for much of 2024.
Closing that gap will mean turbocharging sales and the operating margin. Doing so will be hard with many of the group's staler current brands. Fernandez may therefore need to be bold. He could look at buying a fast-growing, high-margin business like $30 billion Galderma (GALD.S), opens new tab. Another option would be to revisit Advil painkiller-maker Haleon, which Unilever attempted to buy for 50 billion pounds ($63 billion) in 2022. The now-listed business is currently worth 36 billion pounds. Either of these possible deals would help to accelerate Unilever's shift away from lower-valued food and towards the more prized beauty and healthcare businesses.
If Fernandez focuses just on the company's existing brands, there is a danger that sales will flounder. Dove, Sunsilk shampoo, Knorr and many others are vulnerable to competition from grocers' cheaper products, making it tough to generate the kind of improvements that investors are seeking. Mega-M&A is always risky, but for Unilever so is doing nothing.
Follow @aimeedonnellan, opens new tab on X
CONTEXT NEWS
Unilever said on February 25 that CEO Hein Schumacher would step down after less than two years in the job. Finance chief Fernando Fernandez will take over on March 1.
Unilever, which owns Hellmann's mayonnaise and Dove soap, said there was no change to its 2025 outlook or medium-term forecast and that the board was committed to "further accelerating" Schumacher's growth plan.
Shares in Unilever were down 1.9% as of 0958 GMT on February 25.
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