I bought shares in Unilever (LSE: ULVR) a week ago, on the back of recent developments. On 17 January, the company confirmed it had made an offer for GlaxoSmithKline‘s consumer healthcare business. Surely a raft of new brands could only help Unilever in the health, beauty, and hygiene business? But while the GSK share price rose on the news, Unilever shares dipped.
Unilever shareholders were not enthusiastic. It seems they saw the acquisition bid, worth £50bn, as missing the real issues. There were deeper problems at Unilever, ones that acquisitions would not fix.
Recent Unilever share price movements have illustrated investors’ dissatisfaction. The shares are down 16% over the past two years, taking in the pandemic effect. And that’s a company selling mostly essential consumer goods that we might see as largely crash-proof. Even over the past 12 months, when the FTSE 100 has gained 16%, Unilever shares have lost 11%.
Over five years, we’re looking at only a 15% gain. Shareholders, though, have at least been pocketing dividend yields of around 3.5%. The weak share price performance led me to see a buying opportunity. Might Unilever even be the best buy in the FTSE 100?
High level critics
Maybe. But it has attracted plenty of high-level negativity. Terry Smith, manager of Fundsmith and a big Unilever shareholder, has been vocal in his criticism of the company’s mediocre returns and unimpressive growth. Unilever recorded an EPS fall in 2020, and analysts are expecting a further dip for 2021.
What’s going to happen now? Unilever appears to have reacted to the negative market response to its GSK bid. The bid was rejected by the pharmaceuticals giant, and the Unilever board has assured us it will not raise its offer. So it has already faded into being merely a distraction.
A start, but is it enough?
Then on 25 January, Unilever announced a simplification of its organisation. Around 1,500 senior management roles will go, with the company reshaped into five core business groups. That’s something, but is it enough? There’s been another development that suggests maybe it isn’t.
Meet Nelson Peltz. He’s an activist investor, with a track record of shaking up companies and improving their efficiency. It turns out that, through the Trian Partners fund of which he is a co-founder, he’s been building up a stake. That news gave Unilever shares a bit of a boost, helping reverse the previous week’s dip. And it seems it gave the board a nudge to release the reorganisation plans.
Unilever shares shake-up?
Will the arrival of Nelson Peltz mark a turning point for Unilever? Can he repeat what he previously did for Procter & Gamble? Well, his activism hasn’t always been successful, with a failed attempt to shake up General Electric on his record. I suspect he will face significant resistance from the Unilever old guard too. Activist investors usually do.
Unilever shareholders might well face further pain before things get better, if they even get better. And it seems strange to be buying Unilever shares at a risky time, when I’ve traditionally seen the company as super safe. But I still see enough safety at today’s valuation, and I’m happy with the risk.
