Time for Unilever boss to concede lack of appetite for a big tilt

theguardian.com:

It’s one thing for Terry Smith to take a swipe (slightly unfairly) at Unilever management’s love of seeing purpose in mayonnaise, which was last week’s entertainment. The latest missile from Mauritius, which is where Smith resides while picking the stocks for his £29bn Fundsmith fund, is more serious and better-aimed.

Framed as a “postmortem” on Unilever’s abortive £50bn tilt at GlaxoSmithKline’s consumer products business, it was scathing on management, strategy, long-term performance and communication – all the big stuff.

The numbers didn’t add up on the GSK deal in terms of returns on capital, or not in a way Unilever was prepared to explain, argued Smith. Unilever’s share price has lagged rivals’ for years and management responds with “meaningless platitudes”. The new strategy of targeting beauty, oral care and over-the-counter medicines would take the company into areas where it has little expertise. Management – “or someone else if they don’t want the job” – should improve the current business before attempting new challenges.

This column would dispute the idea that acquiring the GSK business would have been a leap into the unknown. The logic wasn’t wacky. As the Jefferies analyst Martin Deboo put it, the widespread hostility to the deal would almost make you think Unilever had proposed buying a defence contractor rather than “a purveyor of toothpaste and headache remedies”. Quite.

Yet Smith’s advice to fix the current assets will resonate. His fund’s £800m investment represents a stake of slightly under 1%, but the lack of appetite for an enormous “transformational” deal is widely shared. That is the main lesson of this week.

The chief executive, Alan Jope, if he values his job, would be wise to concede as much when he