Terry Smith, the star stockpicker behind the £12.5bn Fundsmith Equity Fund, makes big move following controversial merger
Consumer goods giant Unilever accepted a merger offer in March(Image: PA)
One of Britain’s most prominent fund managers has offloaded his stake in Unilever worth hundreds of millions of pounds, accusing the consumer goods group of turning its back on traditional shareholders in favour of activist-driven transactions such as last month’s blockbuster McCormick deal.
Terry Smith, the celebrated stockpicker behind the £12.5bn Fundsmith Equity Fund, exited his position in Unilever last month, City AM has revealed, after the Vaseline and Dove owner signed a $45bn (£33bn) agreement to merge its struggling food division with US spice giant McCormick.
“We have sold out of Unilever because the company appears to have abandoned its promised operational focus in favour of activist-driven break-ups,” Smith, whose eponymous fund ranked amongst Unilever’s top 10 largest shareholders for more than 15 years, told City AM. Those included its decision to transfer “its food business to McCormick, whose management and returns we do not rate highly”, he added.
Unilever caught many investors off-guard in March when it accepted an offer from New York-listed McCormick, which owns brands like French’s mustard and Frank’s hot sauce, for its food division as part of a broader push to divest underperforming assets. Earlier this year, both Hellman’s and stock cube brand Knorr featured amongst the company’s ‘power brands’, into which Unilever indicated it intended to channel additional investment as part of the latest in a series of strategic overhauls.
The merger, reportedly orchestrated by activist investor Nelson Peltz, prompted an immediate slump in Unilever’s share price, with the Anglo-Dutch company’s stock dropping seven per cent upon confirmation of the deal.
Investors have since raised concerns over the level of debt being placed on the combined entity, while others – including Smith – condemned Unilever for exploiting new London listing rules to force it through, circumventing a shareholder vote entirely, as reported by City AM.
Unilever investors will hold 65 per cent of the merged company, which is set to become one of the world’s largest standalone food groups. Meanwhile, other investors have cautioned that the new entity faces an abrupt sell-off should it choose not to list in London, as many of the FTSE 100 group’s existing shareholders are mandated to invest solely in UK-listed companies.
Fundsmith’s decision to offload its Unilever stake brings to a close one of the fund’s longest-held positions, whose value has more than doubled since the initial investment in the group back in 2010. However, since the pandemic, the consumer staples giant has consistently weighed on the fund’s performance, frequently featuring on its list of top detractors in its monthly investor bulletins.
Smith, whose decades-long record of selecting affordable, high-quality businesses has established him as one of Britain’s most recognised fund managers, was a vocal critic of the company’s extensive sustainability drive led by former chief executive Alan Jope. In his annual letter to shareholders in 2022, the investment expert accused Unilever’s leadership of having “lost the plot”, following its announcement of plans to establish a social or environmental purpose for all flagship brands like Hellmann’s mayonnaise.
However, he was heartened by the appointment of Hein Schumacher, Jope’s successor as chief executive, in 2023. At Fundsmith’s annual shareholder meeting, Smith described the management team as “actually pretty decent” and praised Unilever as one of his fund’s most undervalued stocks.
Fundsmith founder and chief investment officer, Terry Smith(Image: City AM)
Schumacher was removed after merely two years in charge – under pressure from activist investor Peltz for not reversing the group’s fortunes swiftly enough. The Dutch executive was succeeded by chief financial officer, Fernando Fernandez, who promptly moved to spin off the company’s ice cream division into a standalone entity, before offloading the remainder of its food brands to McCormick.
A spokesman for Unilever said: “This transaction enables a growth-led separation of Foods at an attractive valuation, creating two stronger businesses, both positioned to win in their categories.
“The transaction was a unanimous decision by the board, which firmly believes it is in the best interests of Unilever’s shareholders. We value open dialogue with our shareholders and will continue our engagement to explain the benefits of the transaction.
“Under the UK rules, it was the board’s responsibility to approve the transaction and conclude that it is in the best interests of the company and its shareholders.”
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