Unilever Investors Turn On CEO After Kraft Heinz's Failed Attempt To Take Over

The fallout of the failed takeover was not expected.
03/27/2017 12:45 pm ET Updated Mar 31, 2017
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Last month, news of a major takeover bid hit the business world out of the blue.

On February 17, the Financial Times’ Alphaville blog reported that Kraft Heinz, the Chicago-based food giant, had made a $143 billion offer to acquire Unilever, the British-Dutch consumer goods mega-manufacturer with more than 400 brands ranging from Dove soap and Ben & Jerry’s ice cream to Hellmann’s mayonnaise and Lipton tea.

The Kraft Heinz’s board of directors features financial luminaries like Warren G. Buffett, CEO of Berkshire Hathaway, and Jorge Paulo Lemann, the richest person in Brazil and a founding partner in 3G Capital. Unilever’s CEO is Paul Polman, the headline-grabbing consumer goods veteran who has become an advocate for climate science, environmental sustainability, and corporate accountability. It was shaping up to be a war of the business titans in what would be the largest international merger since 2000.

Then the whole thing fizzled. In mounting a firm rebuke of the offer, Polman tapped British government officials to decry an American conglomerate taking over one of the country’s landmark companies. An earlier acquisition of Cadbury by Kraft Foods, most Brits believe, has all but destroyed the candy maker’s Britishness. That prompted Parliament business committee chairman Iain Wright to say that a similar takeover of Unilever would allow other British companies to be acquired in “fire sales” in the future.

So, on the nineteenth, after encountering unusually strong resistance, Kraft Heinz withdrew its offer at the direction of Buffett and Lemann. “Unilever and Kraft Heinz hold each other in high regard,” the two companies said in a joint statement announcing the withdrawal of the offer.

With its customer base of 2.5 billion worldwide... [Unilever] missed sales quotas in six out of eight quarters during 2013 and 2014.

The fallout of the failed takeover was not expected. At the time of the bid, shares in Kraft Heinz rose 10 percent, while Unilever shares jumped 15 percent, signaling that investors were excited about the possibility of a deal. Once Kraft Heinz withdrew its bid, Unilever shares dropped by five percent. A subsequent poll of Unilever investors indicated that sentiment concerning the takeover was divided evenly. Half believed Polman should have entertained the offer and held meetings with Kraft Heinz; half did not.

Since then, there has been new attention paid to Unilever as an operation. With its customer base of 2.5 billion worldwide and an employee population of almost 170,000, the company missed sales quotas in six out of eight quarters during 2013 and 2014. Over the past two years, the company saw a decline in sales large enough to make it a target of a hostile takeover attempt.

Some observers are now blaming Unilever’s so-so performance on Polman, among them Neil Woodford, a prominent British investor who is especially vocal. “If it requires people to come in from the outside with a crazy takeover bid for the focus to change,” Woodford said recently, “that implies that the current management were not doing their jobs properly. I know that is a contentious view, I know the City [the British financial district] loves Paul Polman.”

In fact, Polman does have critics, and they note Polman, whose compensation package was reported as $12.5 million for 2016, does not seem to be concerned about slipping sales figures. Instead, he is preoccupied with big-picture issues like the Sustainable Living Plan, Unilever’s “blueprint for sustainable business.” As the company’s website states, “Our vision is to grow our business, while reducing our environmental footprint and increasing our positive social impact.” Some investors prefer Polman focus on the bottom line.

Moreover, questions of hypocrisy have been raised about actions carried out by Unilever under Polman’s justice-centric leadership. In 2013, Unilever was charged with paying workers in Pakistan “starvation wages.” In 2014, Unilever sued Hampton Creek, a small start-up mayonnaise maker, in an effort to put it out of business — a ploy that backfired when the press depicted Unilever as the ugly player in the David Goliath lawsuit. Last year, Unilever reached a long-awaited settlement with almost 600 former employees in India who suffered mercury poisoning from working at a thermometer factory owned by Unilever.

And in South Africa the Competition Commission, a statutory regulatory authority, found that between 2004 and 2013 Unilever and a local company engaged in price-fixing of margarine and other edible oils so severe it fell under the commission’s mandate “to root out exploitation of consumers by cartels.” Polman often hides Unilever’s controversial actions behind a façade of “doing good.” Late last year, Unilever announced it was planting more than 150,000 trees across South Africa as part of its sustainability campaign while offering no comment on the pending allegation of price-fixing.

Unilever investors believed that when the company recently named Marijn Dekkers as chairman he would be charged with finding Polman’s replacement. Now, after Polman blocked the Kraft Heinz merger, at least half of the company’s investors may be thinking Dekkers should be undertaking that task sooner rather than later.

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