Unilever's (UL) Major Operational Changes Hint at Divestment

The company will cut about 1,500 roles as it restructures

British multinational consumer goods conglomerate Unilever PLC (UL) announced a major restructuring of its business from three units to five. The reorganization will eliminate some 1,500 roles globally and see high-level executives leaving or taking on new positions.

On Jan. 25, Unilever announced that it would shift to an organizational model with a category focus and centered around five business groups: Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. In the announcement, Unilever CEO Alan Jope said that the reorganization aims at a structure that is "more responsive to consumer and channel trends," adding that growth remains a "top priority" for the company. Some analysts expect that additional changes—including divestitures—may still be to come.

Key Takeaways

  • On Jan. 25, Unilever announced that it would restructure its operations along five category-driven divisions.
  • The company said that the reorganization aims to drive continued growth and responsiveness to consumer trends.
  • The process will result in a reduction of around 15% of senior management roles and additional junior management roles, or around 1,500 total positions.
  • Analysts see the decision as a reaction to increased pressure from activist investor Nelson Peltz's Trian Fund Management LP, which recently acquired a stake in Unilever.
  • The restructuring positions Unilever to be able to sell off slower-growing businesses, such as ice cream.

External Pressures May Motivate Restructuring

Analysts have speculated that Unilever's announcement may have been motivated in part by mounting pressures to speed up growth and innovation. These pressures have increased in recent days as the conglomerate has become a target of activist investor Nelson Peltz's Trian Fund Management. Peltz consolidated a stake in the company in mid-January after Unilever made a failed $68 billion bid to buy healthcare giant GlaxoSmithKline PLC's (GSK) consumer health business. Unilever stock surged following the announcement of the hedge fund's purchase of its shares, a potential indication of broader investor interest in major changes at Unilever.

The pressure from investors on Unilever to boost performance relative to rivals was in place before news broke about Peltz's purchase, however. Analysts suggest that the company has underperformed competitors in areas including packaged food and hygiene throughout the COVID-19 pandemic. Investors also broadly opposed its GlaxoSmithKline bid, which Unilever framed as a way of further moving into the health, beauty, and hygiene products space.

Signals of Divestitures to Come?

Analysts see investor calls for Unilever to bolster its sales growth and focus on innovation as an indication that the company may divest slower-growing operations. The restructuring plan seems to position the company well for this strategy in the future. Particularly, isolating ice cream as its own division separate from nutrition—which will include ingredients lines, healthy snacking brands, and functional-nutrition products—suggests that Unilever may offload ice cream in the future. The company's food brands have tended to grow more slowly than its beauty and well-being and personal care lines.

Investor response to Unilever's reorganization announcement was tepid, judging by a modest decline in share price following the announcement. Despite restructuring its business and shuffling several top executives, the new divisions will all be lead by Unilever veterans. Without fresh faces spurring new strategies for growth and innovation, investors may be skeptical of the broader impact of the restructuring plan.

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  1. Wall Street Journal. "Unilever Looks to Jump-Start Growth With Sweeping Overhaul."

  2. Unilever PLC. "Unilever Simplifies Organisation."

  3. Bloomberg. "Unilever Plans Thousands of Job Cuts as Peltz Builds Stake."

  4. Wall Street Journal. "Activist Investor Nelson Peltz Buys Stake in Unilever."

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