EVEN HUGE MULTINATIONAL
corporations need to feel loved.
In an announcement that delighted capitalists from Greenwich to Gdansk, Anglo-Dutch consumer-products conglomerate Unilever announced it would buy Ben & Jerry's Homemade, the "socially responsible" ice cream maker born in a converted Vermont gas station in 1978. The purchase values Ben & Jerry's at $326 million, or a 25% premium to Tuesday's close of $34.94, and a 66% premium to where the stock traded before takeover rumors began in December. The stock rose 23% Wednesday.
|Market value*||$56.29 billion|
|Sample products||Popsicles, Q-Tips,
Lipton iced tea
|*As of April 11. **For 1999.|
The deal would make Unilever the world's largest ice cream maker but for one small fact. Unilever is already the world's largest ice cream maker.
The multinational force behind Good Humor and Breyer's has plenty of cash to burn and scads of consumers to chase. Ben & Jerry's has what marketing types call "brand equity" a reputation for making yummy ice creams with appropriately pudgy names like Chunky Monkey and Chubby Hubby. In addition, some consumers choose it over like-priced super-premium ice cream (the variety with more cream and less air) because they admire the company's charitable giving and its record on social issues. That loyalty apparently spurred Unilever, which pulled in $45 billion in sales in the first nine months of 1999, to dig deep into its pocketbook.
For all those who doubt a company can do much social good from within a $56 billion enterprise, rest easy. Ben & Jerry's will maintain its own board, according to a press release from its South Burlington, Vt., headquarters, which will "focus on providing leadership for Ben & Jerry's social mission and integrity." On the other side of the adiposity ledger, the conglomerate also announced plans to buy closely held Slim-Fast Foods for $2.3 billion in cash. Slim-Fast, which produces powders and shakes and candy bars to help Americans become less-chunky monkeys and not-so-chubby hubbies, holds "45% of the U.S. $1.3 billion nutritional supplement and weight management category," according to Unilever. The conglomerate "has identified health and vitality as one of the global trends among consumers."
|Market value*||$2.3 billion
(price offered by Unilever)
|Operating Profits**||$125 million|
|Sample products||Fruit powder, peanut butter
crunch bars, chocolate shakes
|*As of April 11. **For 1999.|
But was this blinding insight enough to inspire Unilever to pay four times 1999 sales for Slim-Fast not to mention nearly twice 1999 sales for Ben & Jerry's? No. Unilever mostly known for less-than-stellar stuff like soap and spaghetti sauce needs whatever kind of growth it can get. Six-time Wall Street Journal All-Star analyst Alice Beebe Longley of Donaldson, Lufkin & Jenrette warned clients in a note Tuesday that the company's "longer-term fundamental growth rate is not inspiring." Saddled with slow revenue growth in Europe and pinching restructuring charges, writes Longley, the company must "suffer ongoing major weeding of weak businesses." And who wouldn't need a nice ice cream after that?
Seriously, though, Unilever must prove to investors that it's finding new areas in which to grow. Indeed, it's already late to the "functional foods" party. The Kraft Foods division of Philip Morris already owns Balance Bar, while Swiss giant Nestle controls PowerBar. (This reporter will make a small donation to the favorite charity of the reader who makes the best suggestion for synergistic marketing involving dairy products, energy bars and either baby formula or cigarettes. Email your suggestions here Because he considers such diet and energy treats the only growth area in food stocks, ABN Amro's Richard Workman sees the Slim-Fast deal as a logical step in Unilever's strategy. The company "is keen to find ways of achieving growth in its food business, and Slim-Fast clearly achieves that," he says.
The Ben & Jerry's deal makes more sense in terms of simple market share. "We are not represented in the super-premium segment in the United States," explains Unilever spokesman John Gould. Most of Ben & Jerry's nationwide distribution is now handled by other super-premium players the Haagen Dazs unit of Unilever-rival Diageo and Dreyer's Grand Ice Cream which presumably puts the company at something of a disadvantage. Unilever will probably take over distribution itself once current contracts expire, and can use its clout in supermarkets to muscle aside these rivals.
|Market value*||$241.65 million|
|Sample products||Chunky Monkey ice cream,
Cherry Garcia frozen yogurt
|*As of April 11. **For 1999.|
Unilever will also try to kick-start the brand's growth overseas. Ben & Jerry's has generated some following in the United Kingdom (where Brits feast on Cool Brittania ice cream), France and Israel, but, to quote Unilever Foods North America chief Richard Goldstein, "Unilever is in an ideal position to bring the Ben & Jerry's brand worldwide." The conglomerate probably has similar global ambitions for Slim-Fast: As Workman notes, the diet-foods company makes 94% of its sales in the U.S., so "the scope for Unilever to grow the business [worldwide] is substantial."
Investors reacted predictably to this double-shot deal, sending Ben & Jerry's to within kissing distance of the offer price and giving Unilever an encouraging lift. The company's Dutch ADRs were up 2.1% Wednesday. Its U.K. ADRs had gained 2.8% off a smaller base.
The investor approbation came none too soon for Unilever, which withstood a trim of revenue estimates Tuesday from DLJ's Longley. In general, multinational food and consumer-products stocks have had an undistinguished year so far. Diageo and Cadbury have managed single-digit gains, while Unilever has slumped 7% and Procter & Gamble crashed 38% after briefly considering a bid for Warner-Lambert. In a market where new ideas and old ones must prove a command of costs and technology, the ability to demonstrate growth seems essential.
And health shakes plus ice cream seems as good a recipe as any.