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Unilever Restocks


Unilever PLC (UN) may have the reputation of a stodgy, old-line company, but Niall FitzGerald, its British chairman, doesn't fit the bill. At 55, he is the proud father of a three-month-old daughter, Gabriella--his fourth child--and is training to run in the New York City Marathon this fall. "I am doing the risky thing of having myself out there publicly [to raise] $2 million for charity," he says.

Some might say FitzGerald is taking chances at his company as well. He doesn't think he has any choice. In late 1999, the company's stock went into a free fall after shareholders dismayed by Unilever's glacial growth abandoned the shares for the sizzle of the high-tech sector. The stock rout prompted FitzGerald and his Dutch co-chairman, Antony Burgmans, to launch an ambitious makeover. They are trying to sharpen Unilever's focus by trimming the vast array of brands it actively manages to 400 from 1,600. Losers such as the tired Elizabeth Arden line of fragrances and skin care products have been sold. Meanwhile, Unilever has gone on a buying spree to soup up its lineup.

RED HOT. FitzGerald's $28 billion spending on acquisitions last year made him one of the world's premier dealmakers. On one day, Apr. 12, he agreed to acquire both the bohemian Vermont-based ice cream maker Ben & Jerry's Homemade Holdings Inc. for $223 million, and red-hot Florida-based diet food and drink maker Slim-Fast Foods Co. for $2.3 billion. He topped those buys with a $24 billion deal for New Jersey-based Bestfoods in June. That brought him a whole satchel of new brands, from the Hellmann's mayonnaise line to Knorr soups and sauces--regarded as among the world's premier brands in fast-growing emerging markets. Since the restructuring announcement in February, 2000, Unilever stock has recovered about 30%, to $59, in a tough market.

Yet if his massive reengineering program fails to deliver the 5%-to-6% top-line growth and the 16% margins he has promised by 2004, investors might dump Unilever stock again. Shareholders want to see an end to the repeated massive restructuring charges that they take as a sign of deep-seated problems. The charges and portfolio shuffling make year-to-year comparisons difficult. For instance, restructuring charges helped drive down operating profits 23% in 2000 to $2.87 billion on sales of $41.3 billion. Exceptional items knocked about $2.1 billion off profits.

While some market pros are high on Unilever, others think its 55-45 split between food products and home and personal care will never be competitive. "The big issue is that they are managing too many categories," says Sylvain Massot, an analyst at Morgan Stanley in London. "Splitting in two would get more focus."

Unilever's key problem is its food business. Massot says the food unit grew just 1.9% in 2000, vs. 5.3% for home and personal care. In contrast, Massot expects Nestle to grow 5.5% a year over the next few years and Danone Group (DA), 5% to 7%. Unilever's food business still has many slow-growing brands and is held back by its large margarine and cooking oil unit, which yields plenty of cash but is in decline.

No wonder FitzGerald has felt under pressure to rearrange his lineup. He likes to say he bought Ben & Jerry's on the same day he bought Slim-Fast because "one makes you fat, and the other makes you thin." Jokes aside, the deals gave Unilever a premium brand to add to its already strong ice cream lineup and a major player in the diet-food industry. Slim-Fast was growing at more than 20% per year, and FitzGerald hopes it can be adapted to markets beyond its U.S. stronghold. The introduction of Slim-Fast in Britain is producing triple-digit growth off a low base.

The key deal, though, was Bestfoods. Knorr, its crown jewel, is not well known in North America. But it is a huge seller in Europe and in emerging markets, with sales of $3 billion in 1999. Knorr, now Unilever's largest food brand, offers a wide range of packaged bouillons, soups, sauces, and meals. They all can be easily adapted for local tastes. Chicken bouillon, which now often replaces chicken stock in the kitchens of countries such as China, can help get other Knorr products into such households. "It is a great product. We should have done that deal," says an executive at a rival U.S. food company.

Getting Bestfoods to click in the Unilever system won't be easy. Knorr and Hellmann's account for around 50% of Bestfoods' sales, leaving a huge number of less desirable brands for Unilever to sell or integrate with its own lines. FitzGerald insists the melding of Bestfoods with Unilever is going well--saying 54 of the 60 Bestfoods managers that Unilever "targeted" are staying.

FitzGerald still has a long way to go before delivering the "buckets of value" he has promised. Unilever is now down to 900 brands, with 300 or so marked for disposal. But growth in the core 400 leading brands is still a meager 4.3% on a 12-month rolling basis. And cost-cutting plans are proceeding slowly. FitzGerald has shed only 8,000 of the 33,000 jobs he hopes to cut over the next few years. Unilever ranks itself only 13th in a universe of 21 peer companies whose performance it uses to calculate bonuses.

Still, FitzGerald, who became chairman in 1996, gets credit for pursuing what is certainly the most ambitious program of change at a consumer-products company. He is bouncing out old civil service-style managers and promoting a new crop of younger execs who he says are "risk-takers." FitzGerald says 40 of the top 100 executives are new to the company's ranks in the last two years. "Unilever has traditionally been a very cerebral company," he says. "What you need is a bit of action."

OUTSPOKEN. Analysts will closely scrutinize Unilever's second-quarter results, to be released on Aug. 3, for signs of further progress. Unilever says it will report an earnings-per-share increase of about 5%, excluding exceptionals. But analysts want to see plans for more disposals, including some Bestfoods brands, as well as the slow-growing DiverseyLever professional cleaning business that accounts for about 4% of Unilever's sales.

Earlier this year, Unilever bowed to calls to split the business by setting up two operating divisions, for food and personal care. That leaves FitzGerald and co-Chairman Burgmans more time to strategize. The two divide up responsibilities but work together on big deals. Burgmans also takes less of the spotlight than FitzGerald, who is one of Britain's most outspoken corporate chieftains. Born in Sligo in western Ireland, FitzGerald grew up in Limerick and went to University College Dublin. There, at 19, he briefly joined the Communist party--in part due to a "fairly strongly developed sense of social justice," he says. But he adds: "If you really pressed, I would also admit that the prettiest girls were in the Communist party at the time."

FitzGerald now calls himself a "slightly wimpish social democrat" but can be scathing on what he considers to be the folly of Britain's staying out of the European single currency. He says that if Prime Minister Tony Blair continues to dither, he'll "damage his reputation," because he assured his European colleagues he would lead Britain into the single currency in his second term. FitzGerald, too, has his reputation on the line with his revamp of Unilever. He can't, however, be faulted for hesitation. By Stanley Reed in London


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