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Case : Unilever
In order to create shareholder value, a diversifyed company must get into businesses that can perform better under common management than they could perform as stand-alone enterprises. As the Unilever case is clearly about diversification analysis in a globally competitive marketplace, we have to understand whether Company’s diversification path and strategy are working, whether recent acquisitions got to create or destroy shareholder value and whether Unilever businesses have strategic fit.
Corporate restructuring came into play for Unilever in the end of the 1990s when the management had no choice but attempt to restore an ailing business portfolio to good health. ...
Restructuring strategy chosen by the management of Unilever involved divesting some unprofitable, declining and cash plunging businesses and acquiring new promising businesses like SlimFast and Ben & Jerry’s, shutting down manufacturing facilities and achieving cost savings as a result. ...
In addition to the business diversification, diversity of national markets is another distinguishing characteristics of Unilever. ... We will see how these strategies work when we discuss Unilever’s recent acquisitions and key brands. ...
According to Unilever’s 2002 annual report, the Company sells its products in nearly all countries throughout the world and manufactures in many of them. According to another source, Unilever has a presence in 88 countries worldwide. ...
Unilever declares that its corporate purpose is to meet the everyday needs of people everywhere raising the quality of their life by bringing high quality products and brands. ...
However, Unilever made a particular emphasis on developing and emerging markets (D&E). ... About € 18 billion or 34% of Company’s revenues come from the developing markets (Africa, Middle East, Asia and Pacific, Turkey, Russia and Latin America) and this piece of Unilever business saw a 9% organic annual growth rate from 1991 to 2001, excluding currency impact. Although, exposure to developing and emerging markets can be a double-edged sword as the Company’s focus has to turn regularly to dealing with economic and political crises, hyperinflation and currency devaluation, Unilever has one of the best track records in dealing with exterior factors, based on a presence in many D&E countries that goes back many decades. The Company’s market presence is impressive: in seven of its top ten D&E markets, Unilever commands a number one market share position. ... For example, in 1998, P&G re-launched its laundry business in Latin America with aggressive marketing and advertising support, to which Unilever responded by cutting prices temporarily, thus protecting its leading market position with only temporary negative margin implications. ...
As the Company declares its commitment to meet “everyday needs of people everywhere”, a thriving emerging markets business is essential for the Unilever, as well as any other global consumer goods company. ... Some operating companies within the organization are owned by Unilever NV (parent company registered in the Netherlands), some – by Unilever PLC (British parent company) and some are jointly owned. The Chairmen of Unilever NV (Antony Burgmans) and Unilever PLC (Niall FitzGerald) were and continue to be the principal executive officers of Unilever. ... Fortunately for Unilever, the company is also diversified into Home & Personal Care industry, which demonstrated a better growth potential than the Food business. ... Number of brands reduced from 1,600 to 750 representing 85% of group sales and 160 local jewel brands remain within this figure, as are 40 global brands, which account for an estimated 64% of Unilever sales. ...
Against a backdrop of the pressing need for innovation, fragmenting media channels, liberalization of trade enabling more efficient supply chains and consolidating retailers, Unilever announced its biggest ever restructuring plan, “Path to Growth”, with the following targets by 2004:
1) 5-6% year-to-year sales growth
2) Operating (EBITA) margins of 16%, while raising advertising and promotions (A&P) spending by 2% to 15%
3) Delivering low-double-digit EPS growth in 2000-2004
In order to achieve these targets, Unilever will have to concentrate on the following:
v Decrease the number of brands from 1,600 to 400. ...
Unilever’s Path-to-Growth program has yielded some impressive cost savings to date. ...
Selling products in almost all countries in the world, Unilever is one of the most diversified multinational corporations. In fact, the management of the Company found it too diversified which led to the restructuring announced by Niall FitzGerald, the co-chairman of Unilever in 1999. Instead of continuing with a heavy portfolio of 1,600 brands, Unilever’s management decided to concentrate on a mere 400. On February 22, 2000, FitzGerald laid out a plan for how Unilever intends to carry through its strategy of brand focus: “It’s all about how we can reshape ourselves for faster growth and expanded margins”. ...
Unilever has several “jewels” in its product portfolio that enjoy high profitability, high-single-digit growth and strong market share positions. ...
The main businesses that Unilever diversified into within Home and Personal Care division are: hair care and skin care (including brands Dove, Sunsilk, Suave, Lux, Pond’s, Vaseline), deodorants (Axe/Lyn, Rexona), prestige fragrances (Calvin Klein), oral care (Signal), household (dish-wash/surface cleaning brands Cif, Domestos), fabric wash (Omo).
The main businesses owned by Unilever in the Food division are: Health & Wellness (Slim-Fast brand), ready-to-drink tea-beverages (Lipton), spreads (Flora/Becel), culinary (Knorr, Hellmann’s and Bertolli), commodity edible oils, ice cream (Magnum, Cornetto and Ben & Jerry’s) and frozen foods (Birds Eye, Iglo and Findus).
The personal care franchise continues to be the most profitable, fastest-growth and most value-creating part of Unilever, with the entire category growing faster and stronger than L’Oreal. ... Some even say that Unilever is a two-speed company if you compare growth potential of its Food vs. ... Bestfoods acquisition alone had an impact of 2% on the Unilever foods business in terms of top-line organic growth. ...
Therefore, despite the progress made, Food in general remains somewhat a drag on Unilever’s growth and margin expansion. ...
The acquisitions that took place in 2000 and cost Unilever more than $27 billion were a very significant step towards achieving the objectives and matching the strategic case and business logic of Path-to-Growth plan. ...
First, we were concerned about the high price paid by Unilever to acquire Bestfoods and resulting from it is the negative EVA associated with the Bestfoods brands. ...
Second, getting Bestfoods due to its size and complexity to click with Unilever system was not easy. Knorr and Hellmann’s accounted for 50% of Bestfoods’ sales but the company also brought a number of less desirable brands that did not fit Unilever’s brand strategy. ...
Finally, critics say that Unilever gave short shift to Ben & Jerry’s social values. Among these critics is the CEO of Stonyfield Farm, organic yogurt manufacturer, Gary Hirshberg who actually helped to arrange the deal between Unilever and Ben & Jerry’s. ... In Ben Cohen opinion, Ben & Jerry’s culture of social responsibility has been under threat since Unilever put their own man in charge of the company.
On a more positive note, Bestfoods matched perfectly into the profitable growth criteria that Unilever used to assess attractiveness of potential acquisitions.
Approximate Word count = 5840
Approximate Pages = 23.4
(250 words per page double spaced)
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