Unilever’s shareholders remain supportive following its rejected bid by Kraft Heinz last week.
In a “rare setback” for Warren Buffett, whose firm Berkshire Hathaway owns more than 43 per cent of the US-based fast-moving consumer goods giant, the expectation is that UK companies will increasingly be sought by predatory international companies with the collapse of sterling following the EU referendum.
EdenTree Investment Management fund manager Ketan Patel says UK investors in Unilever are right to remain sceptical of the bid, which would have resulted in high levels of debt, a possible credit downgrade and resistance from the UK government.
The managers of the Liontrust Special Situations fund, Anthony Cross and Julian Fosh, currently hold Unilever as their second-top position, comprising 4.1 per cent of the £2.3bn portfolio.
They stress the companies identified by their ‘economic advantage’ process will often be acquisition targets, sharing characteristics such as valuable intellectual property, strong distribution channels and significant recurring revenue streams.
But they say: “We are agnostic as to whether this occurs through share price appreciation, or is catalysed through a takeover bid.
“Unilever is a consumer goods business which we believe possesses a significant barrier to competition in the form of a world-class distribution network.
“This network provides the platform through which it can build and enhance brands of substantial value, which include Dove, Lynx, Marmite and Ben & Jerry’s.”
Investec’s Blake Hutchins on the other hand is more supportive of Unilever chief executive Paul Polman’s decision to reject the $143bn bid, which he agrees signficantly undervalued the company.
Hutchins, who runs the UK Equity Income fund, says at such a valuation Unilever is better off as a standalone business than as part of Kraft Heinz.
He says: “We view Unilever as one of the best businesses in the UK market and investment in the company accounts of around 5 per cent of the Investec UK Equity Income fund.
“The company has a strong balance sheet, potential for years of emerging market-led growth and the ability to grow their operating margins. Events since Friday have helped to underpin the valuation of Unilever in our view.
“Paul Polman and his senior management team have refocused their efforts towards raising free cash flow growth and recent events will only serve to galvanise management and expedite these aims, with shareholders at the forefront of their mind.”
Patel adds the cultures of both companies – Unilever with its almost evangelical approach to long-term sustainable growth, and Kraft Heinz’ more brutal cost-cutting approach – would have been the biggest hurdle to overcome, had a deal gone ahead.
He sees the failure of Kraft Heinz to woo Unilever as “a rare setback for Buffett”, usually accustomed to winning major bid battles.
“The appetite for megadeals has been hastened by the availability of cheap debt and with the prospect of a tightening of credit markets, it would be no surprise if Buffett returned to the market – there are several candidates apart from Unilever which would be in the crosshairs of his ‘elephant gun’.”