Terry Smith, founder of Fundsmith, has accused Unilever of misleading investors about its plans to spin off its food business. The investor said he was told by Unilever management that no major disposals would follow the 2025 demerger of the ice cream division. Unilever’s March announcement to merge its food arm with McCormick, creating a $66bn entity, contradicted those assurances. Smith called the move “a direct contradiction” to what he had been promised.
The deal merges Unilever’s Hellmann’s, Knorr, and Marmite brands with McCormick’s Frank’s RedHot and Cholula.
Some shareholders worry about the new entity’s debt load and the pace of change at Unilever. Smith questioned whether McCormick’s leadership could manage the expanded business, citing skepticism about their “capacity for the existing business, let alone a massively enlarged one.”
Unilever defended the transaction, stating it would create “two stronger businesses” and allow the food division to separate at an attractive valuation. The board approved the deal unanimously. However, the move has drawn criticism from investors who view it as influenced by activist shareholder Nelson Peltz, whose Trian firm holds a significant stake in Unilever.
Fundsmith’s £12.3bn equity fund fell 2.9% in the first half of 2023, lagging the MSCI World Index’s 11.2% gain. Smith attributed part of the underperformance to a shift in investor money toward passive funds.
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He announced changes to Fundsmith’s investment process, including a 50% portfolio turnover in the first six months. The fund is also exiting stakes in Luxottica, LVMH, Nike, and Novo Nordisk.
Smith emphasized that Fundsmith would become “more active” in the future but would keep turnover and costs below most active funds. The investor’s critique of Unilever’s strategy highlights broader tensions between long-term vision and activist pressure.
While Unilever claims the spin-off strengthens its position, shareholders remain divided over the risks of debt and leadership challenges. They are concerned about the new entity’s ability to manage its debt load and the potential impact on the company’s overall performance.
Unilever’s decision to merge its food arm with McCormick has significant implications for the company’s future. They must now handle the challenges of integrating the two businesses and managing the new entity’s debt load.
The outcome of this spin-off will be closely watched by investors and industry analysts. It will be important to see how the new entity performs and whether it can achieve the expected benefits of the merger.
