Unilever Revamps in Wake of Rejecting Kraft

The company is buying back shares and taking other steps to placate investors after its rebuff of Kraft's $143 billion takeover bid.
Matthew HellerApril 6, 2017
Unilever Revamps in Wake of Rejecting Kraft

Unilever will launch a $5.3 billion share buyback, raise its dividend 12%, and restructure two major divisions as the consumer products giant seeks to soothe investors after rejecting a $143 billion takeover bid by Kraft Heinz.

Announcing the results of a corporate review, Unilever said Thursday it will also divest its spreads division, which includes the margarine brands Country Crock, Flora, and I Can’t Believe It’s Not Butter, as part of an effort to unlock from 4 billion to 6 billion euros in cost savings.

The review followed Unilever’s rejection of Kraft Heinz’s offer in February as too low. The company’s last share buyback was in 2007.

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“Our recent review concluded once more that our strategy for long-term value creation through growth and compounding returns on investment is the right one for Unilever and for our shareholders,” Unilever CEO Paul Polman said in a news release. “It also highlighted the opportunity to go faster and further.”

According to The New York Times, the moves “are meant to reassure investors who had seen the possibility of more grocery store shelf space and cost savings from the [Kraft] takeover bid.” The company has also been under pressure from investors to increase profitability.

“Despite implementing its own version of zero-base budgeting, under which costs are justified from scratch every year, Unilever’s profit margins have lagged behind those of several of its U.S. and European peers,” MarketWatch noted.

For 2017, Unilever is aiming to deliver underlying sales growth in the 3–5% range and an underlying operating margin improvement of at least 80 basis points.

Following the strategic review, the company will merge its foods and refreshments operations, which had a combined 22.5 billion euros in revenue last year. The merger will lead to a leaner business “that will continue to benefit from our global scale and footprint,” Polman said.

Unilever said the spreads business had achieved modest sales growth in emerging markets last year, but it was not enough to offset continued declines in developed markets.