It won’t end Mr Jope’s troubles. He is under immense pressure to improve the group’s performance. The affable Scotsman has so far been unable to reignite growth in his three years in charge. Unilever’s share price has declined in the pandemic even as those of rivals such as Nestlé, a Swiss giant, or Procter & Gamble (P&G), an American one, have gone up by more than 20% (see chart). A career-defining deal might have set him apart from his predecessor, Paul Polman, who was known for eschewing financial engineering. If the £50bn transaction came to pass, it would be one of Britain’s biggest-ever.
There is also a growing sentiment that Unilever’s zeal for purpose-driven brands, first instilled by Mr Polman, has run out of steam. From ethically sourced tea and fighting deforestation with sustainably-sourced palm oil to marketing Dove soap as a women’s-self-esteem project, the firm has sought to connect with shoppers on their values and draw investors interested in environmental, social and governance (ESG) factors as well as profits. Although ESG remains popular, hints of a backlash against it are appearing. This month Terry Smith, an asset manager who is among Uni lever’s top ten shareholders, groused that the firm has “lost the plot” by pursuing sustainability medals at the expense of financial performance. A hard-headed pivot to a more profitable health business could, if successful, allay such worries.
The deal would have been problematic, and not just because it looked like a heavy lift for Unilever. Megamergers seldom work out as advertised, and Mr Jope’s firm is not renowned for stellar execution. Moreover, the consumer-health market is expanding but incumbents’ share of it is not. Established brands have a place—people need to brush their teeth—but growth in the sector increasingly comes from a new pharmacopoeia of clever products and services, many of them with digital features. Even in good years GSK’s consumer-health division has grown at best in single digits. The long-term growth prospects for its brands look pale. Antacids and nicotine patches have only limited potential, even in emerging markets.
Unilever’s rivals have been more discerning with their acquisitions. In 2020 Nestlé acquired Aimmune, a novel peanut-allergy medication, and a year later it bought Nuun, a challenger in the sports-beverage market. Both deals gave the Swiss firm a foothold in profitable, underdeveloped niches. P&G is dabbling in premium skincare, one of the industry’s fastest-growing categories, with its latest acquisitions Tula Skincare and Farmacy Beauty. If Unilever does end up disposing of its food business, it may also miss out on the boom in alternative proteins, notes Bruno Monteyne of Bernstein, a broker. Meat substitutes appear certain to become more popular with time and companies like Unilever stand to benefit, given their mix of solid research-and-development base and brands beloved by consumers.