A Clean Break-Up for Unilever?

The shares gained Friday amid speculation the company could attract the attention of activist shareholders

Unilever (UL) has struggled to grow its sales of consumer products during recent months -- but analysts have applauded the company's efforts to streamline its business and its stock price has risen nonetheless. Unilever shares continued to rally on Mar. 16, when speculation flared up that the company might be an interesting target to shareholder activists.

Unilever shares had risen by 2.3% to $29.36 per share in afternoon trading on the New York Stock Exchange March 16. The company's stock price has been on a roll and gained around 4.3% on March 15.

On Mar. 13, news emerged that shareholder activist Nelson Peltz had amassed a 2.98% stake in candy and beverage behemoth Cadbury Schweppes (CSG), sparking speculation that the company could be split to increase shareholder value. and indeed, Cadbury announced on Mar. 15 that it plans to sell or spin out its North American beverage arm, which produces Snapple fruit drinks, Clamato juice, and 7Up and Dr Pepper (see BusinessWeek.com, 3/15/07, "Cadbury's Split Cheers Investors").

Now tongues are wagging over Unilever, which makes products that range from Dove soap to Hellman's mayonnaise.

"Rumour of the day: Unilever shares are rising on hopes that it might be the next target for activist shareholders after Cadbury" a blog on the Financial Times reported Mar. 16. The FT expressed skepticism, citing Bernstein analyst Andrew Wood's assertion that Unilever would be harder to split up than Cadbury, and that Unilever's far larger size would make it harder to bid for the whole company.

A Unilever spokeswoman declined to comment, explaining that it's against company policy to discuss rumors and speculation.

Unilever's stock price has risen by around 33% in the past twelve months as investors note the company's tough measures recently to improve its profits. For example, the company said last year that it completed selling most of its frozen foods business to the Permira Funds for €1.725 billion.

The company announced in February that the amount its operations profit on sales improved to 13.6% during the year ended Dec. 31, 2006, up by 0.4 percentage points compared to 2005. The company's recent operating profit margins include items like 266 million euros of gains associated with changes to its U.S. healthcare and U.K. pension plans during the fourth quarter.

"The shares' discount to peers has narrowed as the company maintains its top-line momentum while protecting and growing its margins," Standard & Poor's equity analyst Loran Braverman said in a research note Feb. 13. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.)

Unilever also increased its spending on things like advertising and promotions by nearly 300 million euros, as the company battles to increase sales in slow growing economies like France. So far the company has managed to eke out underlying sales growth of 3.8% during 2006. In February it predicted a similar business environment for 2007.

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