It's fair to say Unilever (ULVR) shareholders saw this coming. At least that explains the shares' muted reaction to news that the consumer giant plans to demerge its spreads business - which includes household brands such as Flora and Stork - and merge the remainder of the food division with the refreshments business. The company is also planning to review its unusual dual-headed legal structure and launch a €5bn (£4.3bn) share buyback scheme, in addition to a 12 per cent rise in the ordinary dividend.
A strategic review was perhaps likely following the failed takeover bid by US giant Kraft Heinz in February this year. Unilever dismissed the offer, which represented $30.23 (£24.35) cash per share plus 0.222 shares in the newly-enlarged group, because it "fundamentally" undervalued the company. Management is now under pressure to address some of Kraft Heinz's allegations, which largely revolve around Unilever's inefficiency and sluggish growth rates.
One of the new initiatives includes doubling targeted cost cuts to €2bn by 2020. It's hoped that this will go some way to help boost operating profit margins by about a quarter to 20 per cent by 2020. This is an important goal. Unilever's operating margin grew by 50 basis points to 15 per cent last year. Yet this was still behind the 23 per cent achieved by its smaller US rival Kraft Heinz during the period.
Another crucial question which is surely sitting in the minds of many shareholders is: would Unilever be considering this much action had it not received such a well-publicised approach? Given the stock's bond-proxy status, it's tempting to think not. The growth Unilever could theoretically have achieved on its own indicates that any takeover bid would have had to offer a significant premium. But seeing as the shares are still riding high post-bid, it's plausible the stock has undergone a more permanent re-rating - all it needed was a well-timed kick from behind.
Numis analyst Charles Pick says all aspects of the latest strategy seem very sensible, particularly as it credits the existing business model for driving "sustainable revenue growth and reinvestment in the business". But Mr Pick goes further to argue Kraft's approach will be positive for shareholders, referencing the failed $13bn (£10.4bn) bid made by Sir James Goldsmith and other investors in Hoylake Investments back in 1990 for British American Tobacco (BAT). He argues the failed takeover "galvanised" BAT Industries, as it was then, implying the same could be done at Unilever. He also says the new measures were built upon six weeks of intensive deliberation with key shareholders, which suggests the company's largest stakeholders support the new plan.
However, it's interesting to see that Unilever will also re-consider its dual-listed status. Unilever shares are also traded in Amsterdam, which enables it to fully represent its head offices in both London and the Netherlands, as well as its tag line as a "transnational" consumer goods company. Chief executive Paul Polman hasn't given much indication as to what changes to expect here, just that the aim of reviewing the company's legal structure is to simplify it.
