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Unilever 'must be broken up to avoid mediocrity'

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Unilever share price Ben & Jerry's
Unilever share price Ben & Jerry's

Unilever bosses should break up the business before an activist forces their hand, analysts have said as they warned the Ben & Jerry's owner is "reverting to mediocrity repeatedly".

Bruno Monteyne, an analyst at AllianceBernstein, the asset manager, suggested that Unilever could be a "perennial turnaround case" without major change.

He said one way to create value would be splitting the company into "smaller" and "more cohesive" businesses, with one in home care, another in personal care and beauty, and a third in food. This would separate brands such as Marmite and Ben & Jerry’s from Dove soap and Comfort fabric conditioner.

In January, Unilever revealed plans to cut 1,500 management jobs and split the company into five divisions after it attracted the ire of shareholders following its failed £50bn bid for GlaxoSmithKline's healthcare division.

However, executives are facing mounting pressure to go further in a shake-up, as analysts voiced concerns that attempts to turn Unilever around business and accelerate growth are "always coming to naught".

Mr Monteyne said: "If we don't want this latest effort to go to waste, then we need to address the structural and/or cultural issues that caused Unilever to revert to mediocrity repeatedly.

"A more drastic and potentially effective change might be to recognise that one size doesn't fit all when it comes to culture at Unilever."

Unilever is scrambling to overhaul the business and revive growth after it emerged that the billionaire activist investor Nelson Peltz had taken a stake in the company earlier this year. Mr Peltz’s investment firm Trian Partners is yet to lay out any demands to Unilever’s management.

But Mr Monteyne warned: "Unilever should not wait for an activist to pop up on the shareholder register to make drastic changes. Rethinking the company structure and breaking down the company in more agile divisions would accelerate the process of change they started."

It comes amid growing shareholder frustration at Unilever, whose share price has fallen by 8pc since the start of the year.

The company’s botched takeover attempt of GSK’s consumer health division earlier this year wiped £6bn off the value of Unilever after shareholders ultimately forced management to stop pursuing a deal. Renowned stock picker Terry Smith has, meanwhile, lashed out at its "ludicrous" focus on sustainability, arguing that management have "lost the plot".

Unilever risks facing a further backlash from shareholders later this week over its pay plans, after influential investor advisory group Pirc said its bonus plans were "considered excessive" and urged a vote against the proposal.

It follows a warning from the business last week that costs would continue to rise over the coming year, and prices would go higher.

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