Unilever's Spread Its Newfound Charm a Little Too Thin

(Bloomberg Gadfly) -- Like one of its spreads, Unilever NV is laying it on a bit thick.

On Thursday it announced a strategy to achieve what it describes as "accelerating sustainable shareholder value creation."

This can be roughly translated as: we've had a wakeup call from Kraft Heinz Co.'s $143 billion bid and need to convince our shareholders we were right to send them packing.

The answers Unilever has come up with are: buying back 5 billion euros ($5.3 billion) of shares, hiking the dividend, ramping up cost savings by 2 billion euros, raising the underlying operating margin by about a quarter by 2020, and getting rid of the spreads business.

The company could have put the spreads business up for sale long before Kraft Heinz pitched up. The U.S. predator also saw there was more fat to cut in Unilever's bloated cost base. Why couldn't CEO Paul Polman?

At least now he has recognized the company's foot-dragging, but the raft of measures is really the minimum Unilever could have unveiled.

Shareholders didn't seem that impressed by the big announcement, with the London-listed shares little changed. However, they are up about 20 percent since Kraft Heinz's short-lived siege in February, and at 39.52 pounds are just under the $50 price that Kraft Heinz proposed.

But, if Kraft Heinz had stuck around, that is unlikely to have been the final price that Unilever could have extracted. To lift its shares to where a winning bid might have been pitched, the company has to go further with its overhaul.

Gadfly has argued that Unilever should bulk up in its faster-growing personal care business through acquisitions, possibly of New-York based Colgate-Palmolive Co. It could then sell its its more-sluggish food business.

While these measures weren't announced on Thursday, some less eye-catching elements of the new strategy could create the conditions where they may be in the future.

First of all, Unilever is examining its so-called dual headed structure, where it has one company publicly traded in London, and the other in the Netherlands. That is likely to be narrowed to one listed entity. That simplification makes it much easier to do anything involving Unilever's equity, such a big acquisition, particularly in the U.S., a sale or a demerger.

Secondly, Unilever will combine its foods and refreshment arms into one division, which will be based in the Netherlands. It says this is to ramp up profits from these slower growing operations, but putting the two units together makes it easier to sell or spin them off at a later date.

Unilever may have stopped short of announcing the most far reaching courses of action. But it has left itself some useful options.

It needs to use them. It must also deliver on all these promises made to shareholders. Otherwise, it might find that it gets another wake-up call, and this time Polman would be hard-pressed to persuade investors to accept his vision for an independent future.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

To contact the author of this story: Andrea Felsted in London at afelsted@bloomberg.net.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net.