Mark Kleinman: Unilever puts buyout firms in the deep freeze
Mark Kleinman is Sky News’ City Editor and is the man who gets the Square Mile talking in his weekly City PM column. This week, he tackles Unilever’s flakey ice cream approach, Thames Water’s demanding investors, and the long-winded sale of The Observer.
Anyone for an ice cream fight? The decision of FTSE-100 consumer goods behemoth Unilever to pursue a demerger of brands such as Magnum and Ben & Jerry’s came as a bitter disappointment to private equity firms which had been hoping to persuade it to run a full-blown auction instead.
Among the buyout shops’ ranks were Bain Capital and Clayton Dubilier & Rice, the latter of which would have had a significant edge in the dual shape of Sir Dave Lewis, the former Unilever executive who is now an operating partner at the owner of Morrisons, and Vindi Banga, another ex-Unilever boss.
Meanwhile, Bain (and others) is said to have sounded out Alan Jope, who stepped down as Unilever chief executive last year, about working with them on an offer. Jope, according to insiders, declined the opportunity.
Unilever’s conclusion to cast the private equity firms aside was driven by the fact that a sale to private equity would have crystallised a tax liability of as much as €2bn.
That leaves another kind of fight to unfold: the battle to host the listing of the soon-to-be-rebranded Unilever ice cream division.
In pole position has to be the Netherlands, Unilever’s joint home until its contentious decision in 2020 to scrap its Anglo-Dutch structure in favour of a single holding company based in London.
Sources say that Unilever had indicated to the Dutch government that any future listing of one of its major divisions would take place in Amsterdam, although it cannot have been a cast-iron commitment, since Unilever is not due to confirm its plan until the first quarter of next year.
London would be the obvious alternative for Unilever’s ice cream van to arrive, given its familiarity with the exchange and proximity to the company’s global headquarters. Winning it feels like a disproportionately important mission for the UK capital markets.
I understand, though, that some shareholders are pushing Unilever to consider a third option: spinning the ice cream arm off via a listing in New York. The London Stock Exchange has its work cut out if it’s to avoid Unilever’s deep freeze.
Thames Water investors have no right to a fine veto
Let’s call it a watershed moment. In exactly a week’s time, investors in Thames Water will have a clearer idea about whether the company is financially salvageable or still heading for the depths of temporary nationalisation.
Ofwat’s final determinations on water companies’ investment plans for the next five years will not only be closely watched by the industry’s existing debt and equity investors, but by infrastructure investors globally. An adverse outcome for the sector would send a clear signal that Sir Keir Starmer’s recent broadside aimed at Britain’s economic regulators – that they should retain a weather-eye on the impact of their decision-making on Britain’s economic competitiveness and attractiveness to international investors – is not yet having the desired effect.
In one area at least, though, Ofwat is right to take a harder line. As I reported here in mid-November, Thames Water’s class A creditors had originally proposed stipulating that the proceeds of their prospective £3bn emergency capital injection could not be used to repay regulatory fines. That clause was subsequently withdrawn from their term sheet, instead being replaced by a desire for the company to “mitigate” the scale of penalties imposed on it.
That is the right outcome in every sense. Seeking rational regulation is one thing, but investors cannot be allowed to hold Ofwat to ransom. Thames Water’s inability to discharge its regulatory obligations properly has caused significant environmental damage over many years. If it is not forced to make reparations for that harm, then the principle of moral hazard in Britain’s water industry would be completely washed away.
Investors who wish to participate in any upside from a turnaround of Thames must not be allowed to evade that responsibility.
Observer owner’s minutes should show Tortoise time
Green energy tycoon and newspaper boss ‘in lying row’: it’s worthy of a front-page headline in its own right, and it just about summarises relations between Guardian Media Group and Dale Vince, a would-be suitor for The Observer.
Vince has, though, been thwarted by the deal reached last week between GMG (and its parent, the Scott Trust) and Tortoise Media.
To appease disgruntled Observer journalists, the Scott Trust will invest £5m in Tortoise, with some associated woolly commitments about the start-up’s other investors taking a long-term approach to their shareholdings. How enforceable these are remains to be seen.
Either way the board of GMG – which through its newspapers’ business pages is a consistently vocal arguer for corporate transparency – should offer a fuller explanation of the process it has followed to sell the world’s oldest Sunday newspaper.
Since the summer it has argued that it has been unable to engage with rival bidders owing to its exclusivity agreement with Tortoise Media. Legitimately, it has had little to go on anyway from the anonymous letters it has received from a number of law firms declaring interest.
Vince, a credible businessman, is different. GMG sources maintain that his account of their exchanges is inaccurate. The only way to start restoring its credibility in the eyes of its own employees is to publish the minutes from those meetings.