Unilever wanted a mega-deal. It got Nelson Peltz instead

Unilever: Trian has entered the chat

DD doesn’t envy the task ahead for Unilever’s investor relations department.

Chief executive Alan Jope has landed in the line of fire of angry investors, following an abortive tilt at a £50bn deal that intensified focus on the company’s weak share price performance in recent years.

Now the UK consumer goods group, which had been seeking to buy GlaxoSmithKline’s consumer health business to drive a transformation of its portfolio of products, has another potential headache on the horizon: Trian Partners, the US-based activist hedge fund co-founded by Nelson Peltz.

The FT’s Arash Massoudi, Harriet Agnew and Judith Evans revealed on Sunday that the activist fund, which has pushed for change at several other large consumer companies over the past decade, has built a stake in Unilever.

The revelation, at least initially, has brought a bit of respite. During a tumultuous trading day where European markets swung to heavy losses, shares in Unilever climbed 7.3 per cent and pushed the company’s market cap back above £100bn. 

Unilever also jumped into action, with news coming out that it is planning to cut thousands of management jobs as it accelerates a push to improve sales growth.

Jope will be hoping that his response has been swift enough to show Unilever’s growing chorus of disgruntled investors that he’s got the message. Otherwise, he risks leaving the door open to Trian and Peltz, who have yet to comment publicly, to give them a reason to switch up their loyalties.

It’s still unclear what kind of demands Trian would make should it choose to stage a campaign.

While Peltz’s efforts to push for change haven’t always gone as planned, the activist investor has waged successful campaigns at some of the consumer industry’s largest corporations including Procter & Gamble and Sysco.

Martin Deboo, analyst at Jefferies, wrote on Monday: “We have long been of the view that the right path to unlock value at Unilever is via a faster rate of disposals from its slow-growing foods businesses, or a separation between foods and [the household and personal care division], via a sale or spin [off]. We think that Trian might take a similar view.”

For further reading on Peltz, DD’s Rob Smith recommends this excerpt from Connie Bruck’s seminal 1988 book The Predators’ Ball detailing the billionaire’s alleged risqué Long Island tennis matches with the late corporate raider Saul Steinberg.

Asia’s richest man targets super-small business

In India, if you want to think really big, sometimes you have to think really small. Like, kiosks selling loose cigarettes type-small. Just ask Asia’s richest man Mukesh Ambani.

Ambani’s Reliance Industries, the oil-to-telecoms conglomerate that he transformed into a corporate juggernaut, has set its sights on the tiny mom and pop shops that dominate Indian retail, the FT’s Chloe Cornish reports from Mumbai.

The little shops, known as kiranas, account for well over 80 per cent of India’s growing retail market. Picture floor-to-ceiling shelves crammed with everything from soap to salt to vegan parmesan (something that Chloe found in her local kirana recently).

Many of these kiosks are garlanded with packets of spices and chutneys, catering to those who can’t afford a full pot.

Reliance’s retail unit wants to supply these stores online, via its JioMart platform, displacing the distributors who represent the big fast-moving consumer goods companies like Colgate-Palmolive.

JioMart isn’t the first to offer kiranas an online option — Udaan, India’s premier business-to-business online platform and JioMart’s key rival, got the jump on them.

But JioMart is offering rock-bottom prices on some products, which threatens to cut out the traditional salesmen who sell to kiranas. Reliance, in its earnings presentation on Friday, called this “aggressive merchant partner onboarding in existing and new markets”.

It might look like distributors are freaking out a bit early, given that they still have the lion’s share of this market. But remember that Jio, Ambani’s game-changing mobile telecoms group, rose to become India’s largest mobile operator by enticing customers via rock-bottom prices and freebies in less than five years since its 2016 launch.

No wonder distributors believe that their livelihoods could be at risk.

Private equity’s new cheap money windfall

Private equity executives have always relied on debt to juice their returns, so it’s only natural that they embrace leverage when given the opportunity to apply it to their own firms.

As DD’s Antoine Gara and Kaye Wiggins revealed, some of the industry’s largest privately held firms including Warburg Pincus, Global Infrastructure Partners and Robert Smith’s Vista Equity Partners have collectively sold billions in debt against their firms, opportunistically raising cash ahead of the US Federal Reserve’s expected interest rate increases.

Firms raised a record $9bn-plus through private debt sales in 2021, borrowing against their partnerships mostly to invest in their own buyout funds. Willing debt buyers were dozens of life insurers led by MetLife and AIG, and even Apollo Global’s Athene arm.

Buyout firms were able to borrow as much as $1.5bn for a decade or longer at about 3 per cent, according to DD’s sources, with minimal covenants except to restrict debt levels to four times ebitda. If firms earn strong fund returns, the financing arbitrage could generate windfalls of about $1bn by the time the debt needs to be repaid in the 2030s.

The deals also help firms manage the torrent of cash pouring into their funds. Pensions ask firms to commit at least 2 per cent of each fund, commitments that can exceed $400m as the industry’s largest funds swell beyond $20bn in size.

“It’s easier to make a commitment of 3 per cent when you have a $100m fund, versus a $20bn fund,” said Joseph Lombardo, head of the private equity general partner advisory practice at investment bank Houlihan Lokey.

Borrowing, instead of selling a minority equity stake to Blue Owl or Petershill, or going public, avoids dilution of ownership and offers tax advantages by deferring some capital gains.

“It helps them raise money without it coming out of pocket,” Lombardo added. “They can make money on the cost of borrowing being less than their expected return.”

Job moves

Goldman Sachs Asset Management has revamped its leadership in the biggest management overhaul since it combined its merchant banking and money management arms in 2020:

• Luke Sarsfield, co-head of its client business, has been promoted to co-head of asset management alongside Julian Salisbury, who has been running the business solo since Eric Lane left the bank last March to join investment firm Tiger Global Management.

• Sarsfield’s former co-head Craig Russell will become vice-chair of asset management.

• Chief administrative officer Laurence Stein has been promoted to executive vice-president and chief operating officer.

Boutique investment firm JC Flowers has hired former National Bank of Canada chief executive Louis Vachon as an operating partner.

Merrill Lynch financial adviser and managing director James Iannazzo has been fired after police arrested him for an alleged racially charged outburst at a Connecticut smoothie shop.

Matthew Chamberlain, head of the London Metal Exchange, is stepping down to lead the Nomura-backed crypto custody start-up Komainu.

Latham & Watkins has named Sarah Fortt and Betty Moy Huber as partners and global co-chairs of its ESG practice alongside Paul Davies.

Smart reads

Lost in translation Even Wall Street’s most outspoken ringleader Jamie Dimon is having a hard time getting JPMorgan’s sky-high tech spending across to shareholders. He won’t be the only chief executive having to justify rising costs. (FT)

Big Tech vs Little Tech A new generation of Chinese start-ups has been selected by Beijing in a state-sponsored effort to take on Silicon Valley. (Bloomberg)

Game on Microsoft’s mega-deal with video game developer Activision has raised the stakes in Big Tech’s Game of Thrones-style battle to conquer the gaming industry. (FT)

News round-up

Tesla strikes back at JPMorgan in legal fight tied to Musk’s take-private tweet (FT)

Activist investor urges Peloton to fire chief and explore sale (FT + Lex)

KKR-led consortium to buy owner of Raleigh bikes in €1.56bn takeover (FT)

THG loses fifth of value as tech sell-off accelerates (FT + Alphaville)

What’s behind the N26 employee exodus? (Sifted)

Brookfield expands hedge fund business into Europe (FT)

M&C Saatchi rejects sweetened takeover approach (FT)

China’s vape queen hit by Beijing investigation (FT + Lex)

Investors sell out of IPOs early at record rates as stocks boom (FT)

Latin American VC investments triple record to pass $15bn in 2021 (FT)

Italy needs reform to be ‘business-friendly’, says Mediobanca chief (FT)