🤔 What's Behind Unilever's Revamp?

Unilever is undergoing a transformation by restructuring itself. What's caused this sudden change?

Imagine if you and 1,499 of your colleagues were suddenly fired by your company.

What could be the reason? 

Recession? The pandemic?

Well, for Unilever the decision to fire 1,500 employees was corporate restructuring.

But why is a well-established company suddenly restructuring itself?

A series of events (both fortunate and unfortunate) have led Unilever to make this decision. 

Unilever's Restructuring Strategy

Unilever will be firing 1,500 people cutting down its senior management pool by 15% in the biggest job cuts the company has ever seen.

The move comes as the company is completely reorganising its structure.

Previously, Unilever (the global parent company of HUL) had three main divisions: Food and Nutrition, Home Care, and Beauty and Personal Care.

But now, it is dividing these three categories into five: beauty and wellbeing, personal care, home care, nutrition, and ice cream.

Yes, a separate category for just ice cream.  After all Unilever owns around 49 ice cream brands! 

So, clumping ice cream with food and nutrition was not helping any of the brands in this category to grow to their full potential. You see even companies have a focus issue.

The same goes for the beauty and personal care category. This sector is witnessing massive growth right now, and to properly harness the potential of this category the company had to break it into two.

But why did this 90-year-old company suddenly feel the need to restructure?

The Need for Restructuring

The answer is simple: it is not performing great and investors are unhappy.

Its revenue hasn't grown much in the past few years and the pandemic has only made things worse. The company faced several challenges like an increase in the price of raw materials, especially in emerging markets where inflation is raging. Add to this, the new wave of D2C brands.

This has led to forecasts that its full-year income is set to decline this year by 0.2%. That doesn't seem much but investors feel that a company like Unilever shouldn't really be witnessing declines.

Plus, the company's share price has also remained stagnant (and is now declining) for quite some time. This is another detail that has upset investors.

So, it decided it was time to restructure.

Now Unilever did not suddenly come up with the restructuring solution. It was the final resort after the company had exhausted other options.

What options? Throwing money at the problem.

Yeah, since its own brands were not performing that great, Unilever decided to acquire the health and hygiene arm of GlaxoSmithKline (which makes products like Sensodyne toothpaste). 

It made offers of up to $68 billion. But GSK said Unilever was undervaluing its business and said it was not for sale!

Unilever had thought the deal would excite investors and boost share prices. But on the contrary, its failure led to more disappointment causing its stock to fall.

So, it realised it would have to put in hard work and fix the problem.

But this realisation wasn't entirely self-driven. You see, many believe something or rather someone else is driving this change in Unilever.

Rumours are floating around that Trian Partners, an activist investor group, has been buying shares of Unilever. And it may be this group that is driving the change.

Wait, what?

Okay, first things first. An activist investor is someone who uses their stake in a company to drive meaningful change. For this, they often need to have a significant shareholding.

And Trian Partners is kind of a legendary activist investor. A few years back it had sorted out P&G’s (Unilever's competitors) business by similarly restructuring the company. 

P&G's stock price has almost doubled since they invested in the company!

Investors are excited about this development, thanks to which Unilever share prices rose 5% when the news came out.

Okay, ReadOn. So lots of new developments are set to happen at Unilever. But why did the company fire people? Won't it need a strong workforce?

When you organise your closet and your room (usually at 3 am), what is the first thing you do?

Get rid of the clutter, right? Because how will you ever get organised without it?

That's what Unilever is doing. You see, often in big companies like Unilever, there are jobs that don't really add value but just increase the chain of command. So, decision making takes longer and stalls growth. Which is why Unilever is mainly focusing on firing people from senior management positions.

Plus, the next step in the company's reorganisation strategy might be disinvestment. Trian Partners may convince it to get rid of some underperforming brands from its catalogue. So, the workforce requirement will further go down.

Now, the question is will these strategies actually help Unilever get out of its rut?

Only time will tell…

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