Unilever boss Hein Schumacher is moving into a higher gear with the decision to hive off its world leading ice cream brands, including Wall’s, Magnum and Ben & Jerry’s.
It is a bold move in that ice cream sales have outperformed many other of the consumer goods giant’s food categories in recent times, although a complex supply chain has a negative impact on profit margins.
As much as conglomerate structures have their advantage, by helping to smooth out differences in performance, they often disguise underlying value and interfere with focus. So doing the splits can work wonders.
As part of ICI, the pharmaceutical arm Zeneca barely registered.
But after the failed bid for ICI by James Hanson in 1991, Britain’s then biggest industrial group decided it had little choice but to float off Zeneca.
Frozen out: Unilever boss Hein Schumacher is hiving off the company’s world leading ice cream brands, including Wall’s, Magnum and Ben & Jerry’s
It subsequently merged with Sweden’s Astra and AstraZeneca now vies with energy giant Shell to be the FTSE 100’s most valuable company.
More recently in the same sector, separating consumer health products Haleon has enabled Emma Walmsley at GSK to restore the value and focus of the life sciences and vaccination group.
The big concern about doing the splits is that it makes the company downsizing more vulnerable to takeover.
This was certainly the case at Cadbury after Nelson Peltz, now a Unilever director, encouraged the separation and float of its Schweppes soft drinks arm.
In the case of Unilever, with its huge array of brands, it is unlikely that a disposal with an estimated value of £15billion or more will leave the parent exposed.
When Kraft Heinz had a £115billion tilt at Unilever in 2017, management fought off the predator without even consulting investors.
That still sticks in the craw of investment guru Terry Smith, an outspoken critic of Unilever in the past.
The Fundsmith boss thinks Schumacher is doing the right thing with the ice cream split and reorganisation which will lead to a further 7,500 largely office jobs being axed. He is sceptical about the decision to call it a ‘Growth Action Plan’.
One of the unanswered questions about saying goodbye to ice cream is deciding where the new company will be quoted as a separate entity.
When Unilever tried to hide itself away in Rotterdam in 2018, it was roundly defeated by UK investors.
The suggestion now is that the separated ice-cream company has three choices. Amsterdam, because the company is based there and a result of a pledge made to the Dutch authorities.
The US, because it is the biggest ice cream market. And London, because Wall’s has a British heritage which can be traced back to the 19th Century.
There should be no contest. At its core, Unilever is a European company with deep roots in the UK.
Moving the float to the Netherlands after the previous struggle over Rotterdam would re-open old wounds and could raise tax problems for UK shareholders.
Hiving off ice cream, including the luxury Ben & Jerry’s brand, could relieve Unilever of a delicate political problem.
It has regularly found itself at odds with the independent board in Vermont which has been highly critical of Unilever’s presence in Israel and the West Bank.
To the credit of Unilever, which has a history in the Middle East dating back to the early 20th Century, it has never hesitated to find ways of supplying Ben & Jerry’s in the region.
So what do we make of rump Unilever? Over the years, its food arm has become less important with the sell-off of spreads such as Flora and more recently its tea offshoot. One hopes that Marmite, with its historical connotations in the UK, is sacrosanct.
It has been clear for some years that the most important parts of Unilever, dating back to its origins at Port Sunlight on Merseyside, are beauty and wellbeing, personal and home care, with nutrition trailing the rest. Selling off ice cream is a big decision.
But it will not be the last disposal.
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