Unilever’s headquarters in London
Unilever’s headquarters in London. The company’s share price has underperformed rivals’ in recent years © Hannah McKay/Reuters

Top Unilever shareholder Terry Smith has called the company’s rejected bids for GSK’s consumer health division a “near-death experience” and urged management to focus on improving the existing business rather than targeting big acquisitions.

The Fundsmith founder and his head of research, Julian Robins, set out the view in a wide-ranging letter to the £29bn asset manager’s investors on Thursday, a copy of which was seen by the Financial Times. In it, they criticise Unilever’s management, strategy, communication with shareholders and “penchant for corporate gobbledegook”.

The letter said: “It seems to us that Unilever management’s response to its poor performance has been to utter meaningless platitudes to which it has now attempted to add major M&A activity. What could possibly go wrong?”

Unilever’s share price has underperformed rivals’ in recent years and stands slightly below its levels when the group repelled a bid from Kraft Heinz in 2017. Its then chief executive, Paul Polman, described his successful fight against the hostile Kraft Heinz takeover as a “near-death experience” — comments Smith and Robins echoed on Thursday.

“It now appears that Unilever’s attempt to purchase the GSK consumer business is now thankfully dead rather than the value of our investment in Unilever,” they wrote in the letter.

Mauritius-based Smith is the outspoken founder of Fundsmith, whose successful long-term record has helped him amass a large following of retail investors. As of Wednesday, Fundsmith owned an £814m position in Unilever, making it the company’s 13th largest shareholder.

Unilever, maker of Dove soap, Hellmann’s mayonnaise and Magnum ice cream, on Monday signalled it was shifting its strategy to pursue major acquisitions. But Smith and Robin’s letter said: “We believe the Unilever management — or someone else if they don’t want the job — should surely focus on getting the operating performance of the existing business to the level it should be before taking on any more challenges.”

The letter follows Smith’s annual client missive last week in which he criticised Unilever’s chief executive, Alan Jope, and top management for burnishing sustainability credentials at the expense of running the business.

“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot,” he wrote.

Unilever’s three bids for the GSK unit, which is 32 per cent owned by Pfizer, late last year culminated in a mostly cash offer of £50bn. But its pursuit was effectively ended on Wednesday with a statement saying the company would not raise its offer beyond that price, which GSK had already rejected.

The backtracking came as shareholders began to go public in opposition to the deal. Flossbach von Storch, a top-10 shareholder, told the Financial Times it would “strongly oppose” it in a vote and urged management to abandon its bid.

GSK has been preparing to spin off the consumer health division as a new independent company this year. Smith and Robins questioned why investors should not just wait and buy shares in the initial public offering because for “Unilever to buy it will involve paying a control premium to the expected IPO valuation”.

They added that while Unilever said that the bid worked on financial metrics, including return on capital, “getting management to discuss what that number was, was like a dentist pulling a back tooth”. 

Smith and Robins stopped short of calling for an immediate change of management at Unilever but accused them of playing “‘what Warren Buffett lampoons as ‘gin rummy’ management . . . throwing away their least promising card(s) each round in the hope they will turn over better ones”.

“They should maybe consider whether the problem may not be with the hand/business but with the player/management,” they added.

Unilever had on Monday defended its attempts to buy the unit, which makes Advil painkillers and Centrum vitamins, calling it a “strong strategic fit”. It said it planned to focus on health, beauty and hygiene via potential “major acquisitions” to be accompanied by selling off lower-growth businesses.

Unilever was one of the Fundsmith Equity Fund’s bottom-five performers last year. Overall the fund gained 22.1 per cent in 2021, just behind its benchmark MSCI World index, which was up 22.9 per cent in sterling with dividends reinvested. Since it launched in November 2010, the Fundsmith Equity Fund has recorded annualised gains of 18.6 per cent.

Unilever did not have an immediate comment.

​Letter in response to this article:

Smith’s criticism of Unilever is easy sound bite / From Robert Schermers, São Paulo, Brazil

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