Unilever Doesn't Get It
Unilever Plc’s stock price is 23 percent higher than it was last month.
Shareholders are 20 billion pounds ($24 billion) better off -- thanks entirely to an unsolicited takeover approach from Kraft Heinz Co. that kicked the consumer giant's complacent management into action.
Yet the company remains independent and has a chance to grow into its new valuation.
The suggestion from Unilever CEO Paul Polman that British takeover laws disadvantage national champions simply isn’t credible, to put it kindly.
It’s easier to buy companies in the U.K. than almost anywhere else in the world. This threat keeps most managers on their toes. Unilever has proved the exception. Perhaps it thought it was too big to be bought. Prior to Kraft’s approach, its shares were drifting and the company wasn’t doing much to allay investor concern about its near-term performance. Kraft, armed with dollar strength and highly rated shares, had a chance to pounce.
British takeover rules give the buyer 28 days to formalize an offer or withdraw for six months. This rule helpfully prevents targets being besieged indefinitely. There is no reason for it to be changed. For Unilever, it meant scrambling to mount a defense. But that’s the company's own fault. Well-run businesses should always have a fully rehearsed plan for a bid or an assault from an activist investor up their sleeve.
Had Kraft made a firm offer, there would have been plenty of time for the market to debate the intrinsic value of Unilever, ironing out any differences between U.S. and U.K. stock-market valuations.
The Anglo-Dutch consumer giant is rightly proud that it treats employees well, aims to minimize environmental damage and demands high ethical standards of its suppliers. By contrast, Kraft's business model is based on slashing costs.
But Britain already has adequate mechanisms to deal with the possibility that companies fall into the hands of unsuitable owners that want to use excess leverage or cut thousands of jobs.
Directors of U.K. companies have a legal obligation to the success of the company as a whole. They can reject a bid that they think is against the interests of the business.
Shareholders might still accept a hostile offer -- but if the public policy implications are severe, the government can seek binding assurances, say on jobs, from the buyer.
There’s no need for anything more formal than that. No bidder would want to proceed against a hostile government or public outcry.
Unilever’s concern for doing the right thing for the long-term ought to support its share rating. It protects the company from reputational damage, which should lower its cost of capital. Millennials are veering to sustainable brands, which should help growth.
But that isn't the only contributor to Unilever's valuation. The company wasn’t showing a sense of urgency about its performance. Thanks to Kraft, now it is.
And for that, Polman's shareholders -- and the broader company -- can be grateful.
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