UL Unilever PLC

By Saabira Chaudhuri 

LONDON -- After the collapse of Kraft Heinz Co.'s short-lived $143 billion attempt to buy Unilever PLC, pressure is mounting on the Anglo-Dutch consumer-goods company to make bolder moves to buoy the company's stock price.

Despite investor encouragement in recent years to sell underperforming businesses and do a large acquisition, Unilever Chief Executive Paul Polman has so far danced to his own tune.

"It's a wake-up call for Unilever and they need to respond," said Société Générale analyst Warren Ackerman.

The companies disclosed on Friday, following a media report, that Unilever had rejected a $50-a-share preliminary offer from Kraft Heinz. They said Sunday that Kraft Heinz had amicably withdrawn its offer, given that Unilever had made clear it didn't want to pursue a tie-up.

Unilever's shares have more than doubled between January 2009, when Mr. Polman became CEO, and Thursday, before Kraft's approach was made public. But Unilever's total shareholder return of 193% over that period, according to Exane BNP Paribas data, is short of those at other European home and personal-care companies: 464% at Henkel AG, 290% at Reckitt Benckiser Group PLC and 215% at L'Oréal SA.

Unilever's profit margins also have lagged behind those of some of its U.S. and European peers, and the company rarely buys back shares, a strategy analysts say Mr. Polman views as financial engineering. Unilever last repurchased its shares in 2007 and last paid a special dividend in 1999.

"Investors have been very patient yet have been given relatively mediocre financial reward," said Exane analyst Jeff Stent. "This should not be back to business as usual at Unilever."

Unilever declined to comment.

Not all investors have itchy feet. Mike Fox, a fund manager at Royal London Asset Management, which holds 0.66% of Unilever's U.K.-listed shares, said he has no major concerns with Unilever's management or approach. "We'd expect shares to go through the value of the Kraft offer and beyond in due course under the current management and strategy," Mr. Fox said.

Unilever shares rose more than 13% in London trading on Friday, to GBP37.97 ($47.20). They dropped as much as 9% earlier on Monday and closed down 6.6% to GBP35.48.

Following Kraft Heinz's approach, Unilever could come under increased pressure to sell, spin off or strike a joint venture for its declining spreads business, which has struggled as consumers eat less bread and, when they do, opt for butter. "Just because it's declining doesn't mean you just sell it; you only sell it if the price you can get for it is better than if you keep it," Mr. Polman told reporters last year. "We're not a charity."

Analysts have also suggested Unilever could choose to divest certain local tea brands -- such as PG Tips in the U.K. -- and instead focus on launching premium tea brands more widely. Despite being the world's largest tea company, Unilever has turned in lackluster sales growth for years as consumers move away from mainstream black tea into areas such as green and herbal teas, to which Unilever has less exposure.

Mr. Polman has stayed away from large acquisitions in recent years, instead opting for a series of deals up to $1 billion, including last year's purchase of Dollar Shave Club Inc. But Kraft's approach could propel Mr. Polman to look at bigger acquisitions as a pathway to growth.

The company has long been rumored to be interested in buying Colgate-Palmolive Co., which would significantly boost its exposure to high-growth personal-care products and deliver major cost savings. Analysts say now would be a good time for such a move given that a January profit warning has pressured the toothpaste maker's shares, borrowing costs are low and Unilever's balance sheet is in good health.

Exane BNP Paribas on Monday raised its target price on Colgate to $90 from $68 and upgraded its rating, saying "the likelihood of Unilever seeking to acquire Colgate has now increased materially." Colgate closed Friday at $71.98, giving it a market value of nearly $64 billion.

Unilever has also long been floated as a natural buyer for Edgewell Personal Care Co., which owns shaving brands such as Schick, Edge and Skintimate along with sun-care brands such as Banana Boat and Hawaiian Tropic. Edgewell has a market capitalization of $4.6 billion.

Edgewell and Colgate didn't immediately respond to requests for comment.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

February 20, 2017 11:58 ET (16:58 GMT)

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