unilever's acquisitions.pdf

Thompson−Strickland: Strategic Management: Concepts and Cases, 13th Edition

22. Unilever’s Acquisitions of Slimfast, Ben & Jerry’s, & Bestfoods

Case © The McGraw−Hill Companies, 2002

C-470

case 22 Unilever’sAcquisitions of SlimFast, Ben & Jerry’s, and BestfoodsArthur A. ThompsonThe University of Alabama

Following several years of sluggish performance, Unilever’s top management an-nounced a new five-year Path to Growth strategy in February 2000 to rejuvenate thecompany and restructure its wide-ranging portfolio of food, home, and personal carebusinesses. The new strategy initiative fashioned by Unilever co-chairmen Niall FitzGer-ald and Antony Burgmans came on the heels of a decline in Unilever PLC’s stock pricefrom a peak of 690 pence in June 1998 to 341 pence just prior to the announcement.

Unilever’s Path to Growth initiative involved greatly reducing the size of the com-pany’s brand portfolio, concentrating R&D and advertising on the company’s leadingbrands, divesting a number of underperforming brands and businesses, boosting prod-uct innovation, making new acquisitions, and achieving faster growth in sales andearnings. Focusing on key brands was expected to allow Unilever to concentrate its ad-vertising and marketing efforts on higher-margin businesses and build brand value,thus gaining increased pricing power with supermarket retailers. The five-year initia-tive was expected to cost a total some 5 billion euros (€); entail closing or selling 100factories and laying off some 25,000 employees (10 percent of Unilever’s workforce)so as to consolidate production at fewer plants; and ultimately produce annual savingsof €1.5 billion through better strategic fits, a streamlined supply chain, and greater op-erating efficiencies. By 2004, Unilever management predicted, the company would beexpanding its sales 5 to 6 percent annually and have boosted its operating profit mar-gins from 11 to over 16 percent, sufficient to produce double-digit growth in earningsper share.

Following the announcement of its Path to Growth strategy, which was met withconsiderable skepticism on the part of industry analysts, Unilever management under-took a series of actions over the next 12 months to deliver on its commitments to boostthe company’s sales and profits. By March 2001, the company had

• Made 20 new acquisitions worldwide, including SlimFast diet foods; Ben &Jerry’s ice cream; Bestfoods (whose 1999 sales totaled $8.6 billion across 110

Copyright © 2001 by Arthur A. Thompson.




Case 22 Unilever’s Acquisitions of SlimFast, Ben & Jerry’s, and Bestfoods C-471

countries and whose major brands included Hellmann’s mayonnaise, Skippypeanut butter, Mazola corn oil and margarines, and Knorr packaged soup mixes);Corporacion Jaboneria Nacional (an Ecuadorian company, with sales of approxi-mately €114 million, that had strong market positions in detergents, toilet soaps,skin creams, dental care, margarine and edible oils); Grupo Cressida (a leadingconsumer products company in Central America); and Amora-Maille (a Frenchmaker of mustards, mayonnaises, ketchups, pickles, vinegars, spices, and cookingsauces with 1999 sales of about $365 million).

• Cut the company’s brand portfolio from 1,600 brands to 970. (To reach the 2004corporate goal of focusing on about 400 core brands, Unilever’s brand reductionstrategy called for letting certain brands wither and decline without active promo-tion and support, selling those brands that no longer fit in with Unilever’s futurestrategy, and discontinuing the rest.)

• Launched 20 internal initiatives to deliver additional sales of €1.5 billion on anannualized basis.

• Divested 27 businesses, including the company’s Elizabeth Arden cosmetics busi-ness, the Elizabeth Taylor and White Shoulders fragrances, the company’s Euro-pean bakery business, the Bestfoods Baking Company (a U.S. bakery businessinherited from the acquisition of Bestfoods), most of its European dry soups andsauces businesses, and an assortment of small businesses that produced and mar-keted lesser-known European grocery brands.

• Reorganized the company into two roughly equal-sized global divisions, one in-cluding all of the company’s food products and the other including all of its house-hold and personal care products.

• Started two new businesses—Cha, a chain of tea houses, and Myhome, a laundryand home cleaning service test-marketed in Britain in 2000 and being tested in theUnited States and India in 2001.

Unilever’s operating results after the first year of the Path to Growth initiativewere somewhat encouraging. In February 2001, the company announced that salesgrowth in the company’s major brands had accelerated to 4.9 percent in the fourthquarter of 2000. Revenues in 2000, including acquisitions, were up 16 percent, to€47.6 billion. Net profits, however, were down from €2.97 billion in 1999 to €1.1 bil-lion in 2000, largely due to €1.3 billion in restructuring charges associated with thePath to Growth initiative. Management said it was ahead of schedule in its restructur-ing efforts.

COMPANY BACKGROUNDUnilever was created in 1930 through the merger of Margarine Unie, a Dutch mar-garine company, and British-based Lever Brothers, a soap and detergent company.Margarine Unie had grown through mergers with other margarine companies in the1920s. Lever Brothers was founded in 1885 by William Hesketh Lever, who originallybuilt the business by establishing soap factories around the world. In 1917, LeverBrothers began to diversify into foods, acquiring fish, ice cream, and canned foodsbusinesses. At the time of their merger, the two companies were purchasing raw mate-rials from many of the same suppliers, both were involved in large-scale marketing ofhousehold products, and both used similar distribution channels. Between them, theyhad operations in over 40 countries.




C-472 Cases in Strategic Management

Searching for Focus and IdentityOver the next decades, Unilever continued acquiring companies and brands, graduallymoving into more food and household products categories in more and more countries.Still, as late as the mid-1970s, more than half of Unilever’s profits came from its WestAfrican plantations that produced bulk vegetable oils for margarine and washing pow-ders. In the 1970s and early 1980s, Unilever diversified beyond food and householdproducts into specialty chemicals, advertising, packaging, market research, and a U.K.-based franchise for Caterpillar heavy equipment. The specialty chemicals businesstransformed products from some of the company’s plantations into ingredients for foodand household products; Unilever also had shipping lines that transported Unileverproducts. However, during the late 1980s and 1990s, the specialty chemicals, advertis-ing, packaging, shipping, and market research businesses were divested in an attemptto shed the company’s image as a conglomerate and focus resources on the company’score businesses.

Unilever’s broad-based product and geographic diversification in foods, personalcare products, and household products spawned a complex management structure thatgave considerable decision-making power to country managers to set their own prior-ities and to tailor products to local tastes. From time to time, Unilever’s top executiveshad launched new initiatives and reorganization plans aimed at giving the companymore focus as a multinational marketer of food, personal care, and household products.Still, in 2000, the company had 1,600 brands of food, personal care, and householdproducts, with sales exceeding $43 billion and operations in 88 countries. Unilever wasone of the world’s 5 largest food and household products companies and had beenranked among the top 60 of Fortune’s Global 500 largest corporations since 1995. Ac-cording to Irish co-chairman Niall FitzGerald, “We’re not a manufacturing companyany more. We’re a brand marketing group that happens to make some of its products.”1

In early 2000, at the time the Path to Growth initiative was announced, the top 400of Unilever’s 1,600 brands—some global brands like Lipton’s and Dove and some lo-cal jewels like Persil (the leading brand of detergent in Great Britain)—accounted forover 85 percent of the company’s annual revenues. A number of Unilever brands hadeither the highest or second highest share in their respective markets. Exhibit 1 showsUnilever’s product and brand portfolio in February 2000.

Organization and ManagementTo preserve the company’s Dutch and British heritage, Unilever maintained two head-quarters—one in Rotterdam and one in London—and operated under two co-chairmen.The company’s headquarters group in Rotterdam, headed by Antony Burgmans, was incharge of food products, while the London headquarters group, under Niall FitzGerald,was in charge of personal care and household products. FitzGerald had been chairmanof the London-based portion of Unilever since 1996 and was said to have been instru-mental in reorganizing Unilever’s 1,600-brand portfolio around 14 groups as opposedto the former 57 groups. Company observers regarded FitzGerald as one of the mostable and innovative Unilever chairmen in decades. Officially, the two co-chairmen hadequal status and responsibilities. Each had offices in both Rotterdam and London, shut-tling between the two headquarters’ locations every couple of weeks. They kept incontact via phone daily. To complement its unique dual headquarters/dual co-chair ap-proach, the company had a dual holding company structure whereby Unilever’s own-

1Quoted in The Financial Times, February 23, 2000, p. 27.





ership was divided into two classes—some shareholders owned Unilever NV stock(based largely on food products) that traded on the Dutch stock exchange, and someshareholders owned Unilever PLC stock (based largely on personal care and householdproducts) that traded on the London FTSE and was included as part of the FTSE 100Index. Since Unilever stock was also traded on the New York Stock Exchange, thecompany reported its financial results in euros, British pounds, and U.S. dollars. Thetwo companies, Unilever NV and Unilever PLC, operated as nearly as practicable as asingle entity; a series of intercompany agreements ensured that the position of share-holders in both companies was virtually the same as having shares in a single company.

exhibit 1 Unilever’s Business and Product Line Portfolio in Early 2000

Unilever Foods Group

Product Category Brands Comments

Margarines, spreads, I Can’t Believe It’s Not Butter, Country Crock, The world leader in margarine and relatedand cooking oils Imperial, Take Control, and Promise spreads, spreads and olive oil, with sales in more

Brummel & Brown spreads and sprays, than 50 countries, Unilever had significant Bertolli and Puget olive oils, Flora/Becel oil plantations in the Democratic Republicspreads and cooking products of Congo, Côte d’Ivoire, Ghana, and Malaysia.

Frozen foods Birds Eye frozen foods (sold in U.K.), Iglofrozen foods (sold in most other European countries), Gorton’s frozen seafood products, Findus pan-prepared meals, and Quattro Stelle meal solutions

Ice cream and Breyers, Magnum, Solero, Walt’s, Langnese, Unilever had ice cream sales in more than frozen novelties Ola, Algida, Cornetto, Viennetta, Pinguino, 90 countries worldwide.

Carte d’Or, Klondike, Popsicle, and Good Humor ice cream products

Tea-based beverages Lipton, Lipton Ice Tea and Lipton Brisk Lipton was the world’s most popular tea (ready-to-drink teas), Brooke Bond and brand—Unilever had extensive tea plantations Beseda teas in India, Tanzania, and Kenya that supplied

tea for its own brands and the tea market ingeneral

Culinary products Ragú and Five Brothers pasta and pizza Ragú was Unilever’s biggest selling culinarysauces, Colmans mustard and sauces, Amora brand; Calvé was Unilever’s most widely usedand Maille mustards, ketchup, and dressings, culinary brand with sales in Greece, Russia, Lawry’s seasonings, Upron Spices and Romania, and much of Europe. Amora seasonings, Wishbone and Calvé salad mustard was the best-selling mustard brand dressings; Calvé peanut butter; Slotts and in France. A number of the dry soups and Klocken mustards, ketchup and seasonings, sauces businesses were sold to Campbell Sizzle & Stir sauces, Wishbone salad Soup in January 2001 for approximately dressings, Oxo stock cubes, Batchelor’s €1 billion.dry soup mixes (a U.K. brand), Royco dry soup mixes (sold in France and Belgium), Heisse Tasse dry soup mixes (sold in Germany), and instant Cup-A-Soup, Recipe, McDonnell’s, Bla Band, and Lipton soups

Desserts Carte d’Or

Bakery products Bread and confectionery mixes, baking Had operations across 13 European countries, ingredients, frozen bakery products such as with sales of €860 million, operating profits ofDanish pastries, muffins, and croissants €60 million, and a workforce of approximately

3,900 people

(continued)





Longtime company analysts regarded Unilever management as a slow-moving,unwieldy, and inherently conservative Anglo-Dutch bureaucracy—one that operated ina staid manner resembling the civil service approach of government agencies. As oneanalyst put it, “Historically, Unilever has been a very inbred business. People used tojoin the company from college and leave it when they were carried out in a box. It wasa cradle-to-grave company.”2 In 2001, about 90 percent of the company’s managerswere locally recruited and trained.

Company critics, moreover, saw Unilever as burdened by lack of a coherent cor-porate strategy and an array of lesser-known, low-volume brands; very few ofUnilever’s brands had global standing or qualified as “power” brands. In emerging-country markets, where there was the greatest potential to grow sales of food andhousehold products, Unilever’s performance was said to be lackluster.

Unilever’s food businesses had traditionally been organized around countries, witheach country having its own factories engaged in making products for mostly nationaland sometimes regional geographic markets. Some countries had multiple brands of

exhibit 1 (concluded)

Unilever Home & Personal Care Group (operations in 60-plus countries)

Product Category Brands Comments

Prestige fragrances Calvin Klein, Chloé, Cerruti, Valentino, Unilever’s fragrance brands represented Lagerfeld, Nautica, Elizabeth Taylor, White one of the largest fragrance businesses Shoulders, Vera Wang in the world.

Deodorants and Rexona/Sure, Axe/Lynx, Dove, Degree, Brut, Rexona/Sure was the world’s number one toiletry products Suave, Impulse deodorant brand.

Hair care ThermaSilk, Sunsilk, Mod’s Hair (Japan), Finesse, Suave, Caress, Dove, Salon Selectives, Timotei, and Organics shampoos; AquaNet and Rave hair care products

Oral care and Aim, Pepsodent, Mentadent, and Close-up oral products (Asia-Pacific, United States), Signal (Europe),

Zhongua (China) toothpastes; Signal and Mentadent chewing gums

Soaps, lotions, and Dove, Lux, Degree, Caress, Lever 2000, Dove was the world’s number one brand skin care products Lifebuoy, and Shield soap bars; Pond’s, of soap.

Vaseline, and Fair & Lovely skin care products; Hazeline shampoos and skin care products (sold in China); Q-tips cotton swabs and balls

Laundry detergents Wisk, Oxo, Omo, Surf, Ala, Persil, All, and Skip Snuggle was the number two brand of fabric and fabric conditioners detergents; Snuggle, Cajoline, and Comfort softener in the United States with annual sales

fabric conditioners. of about $350 million.

Household care Domestos surface cleaners, Cif household Domestos was marketed in 43 countries, and and cleaning products cleaners, Sunlight dish detergents, and Cif was marketed in 53 countries.

Solvol (a heavy-duty hand cleaner marketed in Australia and New Zealand)

Diagnostics Unipath pregnancy tests

Professional cleaning Diversey/Lever commercial cleaning products These products were sold to institutional,laundry, and food and beverage customers.

Source: Compiled by the case researcher from a variety of company sources.

2Quote attributed to David Lang, consumer industry analyst at brokerage firm Investec Henderson Crosthwaite, in an article by John Thornhill in the Financial Times, London edition, August 5, 2000, p. 12.





the same product—for example, American shoppers could choose from seven Unileverbrands of margarine (Promise, Imperial, Country Crock, Brummel & Brown, Mazola,Take Control, and I Can’t Believe It’s Not Butter!); in the United Kingdom there werenine Unilever margarine brands, although only three were supported by advertising.The strategy in margarine was to cater to a wide range of tastes—from a German pref-erence for lighter-colored spreads to British preferences for spreads with a higher fatcontent to American tastes for flavorful and healthier spreads. There were cases wherethe same Unilever products—Magnum ice cream bars, for instance—did not utilizeuniform names, logos, or packaging from country to country.

Performance IssuesUnilever shareholders had not been particularly happy with the company’s perfor-mance in recent years (see Exhibit 2). During the 1990s, Unilever’s sales grew at anaverage annual rate of 2 percent, well under management’s target rate of 5–6 percentand below the 3.1 percent achieved by Nestlé (the world’s largest food products com-pany) and the 4.9 percent achieved by Procter & Gamble. The share price of Unilever’sLondon-based operation, Unilever PLC, had lagged the FTSE 100 Index by almost 40percent since 1995. Unilever had sales per employee of around $160,000 in 2000,compared with $360,000 for Procter & Gamble, $205,000 for Nestlé, $458,000 forKellogg’s, and $605,000 for General Mills.

Unilever executives believed the Path to Growth initiative would rectify the com-pany’s mediocre performance. Concentrating the lion’s share of R&D, advertising andpromotion, and management time on the top 400 brands, they believed, would deliver5–6 percent annual growth in revenues. Faster revenue growth, coupled with cost-saving efficiencies from better strategic and resource fits among the top 400 brands,was expected to push operating profit margins up from 11 to 16 percent and permitdouble-digit earnings growth by 2004. Much of the margin improvement was expectedto come from pruning the low-volume, local brands and thereby simplifying andstreamlining the company’s supply chain.

To stimulate more innovation and entrepreneurial thinking, Unilever had begunstepping up efforts to attract talented managers from outside the company. In addition,Unilever had revised its incentive compensation system. In the old system, the top300–400 managers could earn an annual bonus worth up to 40 percent of their salaries,with the average bonus rate being 15 to 25 percent. Under the recently introduced

exhibit 2 Summary of Unilever’s Performance, 1995–2000 (dollarsand euros in millions, unadjusted for cross-year exchangerate fluctuations)

Fixed Assets (Including Goodwill

Year Dollars Euros Net Income and Intangibles) Employees

2000 $43,809 €47,582 $1,017 $34,852 295,0001999 43,680 40,977 2,953 27,940 255,0001998 44,908 40,437 3,270 35,807 267,0001997 48,761 41,105 5,463 31,671 287,0001996 52,067 39,785 2,500 30,993 306,0001995 49,738 36,234 2,325 30,077 308,000

Source: Unilever annual report for 2000 data; Fortune Global 500 statistics for 1995–99 data; and Wright In-vestors Service for revenues in euros.

Revenues





system, outstanding managers who hit exacting growth and earnings targets could earnup to 100 percent bonuses. A further move was to alter the award of stock options fromgiving equal amounts to all managers at a particular level (based on the company’soverall performance) to making awards of shares based on individual performance.

The food and household products industry was composed of many subsectors, eachwith differing growth expectations, profit margins, competitive intensity, and businessrisks. Industry participants were constantly challenged to respond to changing con-sumer preferences and to fend off maneuvers from rival firms to gain market share.Competitive success started with creating a portfolio of attractive products and brands;from there success depended largely on product-line growth through acquisitions (itwas generally considered cheaper to buy a successful brand than to build and grow anew one from scratch) and on the ability to continually grow sales of existing brandsand improve profit margins. Advertising was considered a key to increasing unit vol-ume and helping drive consumers toward higher margin products; sustained volumegrowth also usually entailed gaining increased international exposure for a company’sbrands. Improving a company’s profit margins included not only shifting sales to prod-ucts with higher margins but also boosting efficiency and driving down unit costs.

In 2000, there was a wave of megamergers involving high-profile food and house-hold products companies (see Exhibit 3). Three factors were driving consolidationpressures in the food industry—slower growth rates in the food sector, rapid consoli-dation in retail grocery chains (which enhanced the buying power of supermarketchains and enhanced their ability to demand and receive “slotting fees” for allocatingmanufacturers favorable shelf space on their grocery aisles), and fierce competition be-tween branded food manufacturers and private-label manufacturers.

The earnings growth picture for many food companies had been bleak for severalyears, and the trend was expected to continue. In the United States, for example, salesof food and household products were, on average, growing 1–2 percent, slightly higherthan the 1 percent population growth. More women working outside the home, de-creasing household sizes, and greater numbers of single-person and one-parent house-holds were causing a shift of food and beverage dollars from at-home outlays toaway-from-home outlays. The growth rate for food and household products across theindustrialized countries of Europe was in the 2 percent range, with many of the samegrowth-slowing factors at work as in the United States. Food industry growth rates inemerging or less-developed countries were more attractive—in the 3–4 percent range,prompting most growth-minded food companies to focus their efforts on markets inLatin America, Asia, Eastern Europe, and Africa.

Since 1985, the share of private-label food and beverages sold in the United Stateshad risen steadily, accounting for roughly 25 percent of total grocery sales in 2000, upfrom 19 percent in 1992. Growing shopper confidence in the leading supermarketchains and other food retailers like Wal-Mart (which had begun selling a full line ofgrocery and household items at its Supercenters) had opened the way for retail chainsto effectively market their own house-brand versions of name-brand products, pro-vided the house brand was priced attractively below the competing name brands. In-deed, with the aid of checkout scanners and computerized inventory systems, retailersknew as well or better (and more quickly) than manufacturers what customers werebuying and what price differential it took to induce shoppers to switch from namebrands to private-label brands. These developments tilted the balance of power firmly

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toward retailers. Thus, competition between private-label goods and name-brandgoods in supermarkets was escalating rapidly, since retailers’ margins on private-labelgoods often exceeded those on name-brand goods. The battle for market share betweenprivate-label and name-brand goods was expected to continue as private-label manu-facturers improved their capabilities to match the quality of name-brand products,while also gaining the scale economies afforded by a growing market share.

Brand-name manufacturers were trying to counteract the bargaining power of largesupermarket chains and the growth of private-label sales by building a wide-rangingportfolio of strong brands—the thesis being that retailers, fearful of irritating shoppersby not carrying well-known brands, would be forced to stock all of the manufacturer’sname-brand products and, in many cases, award them favorable shelf space. At thesame time, because they faced pressures on profit margins in negotiating with retailersand combating the competition from rival brands (both name-brand rivals and private-label rivals), manufacturers were trying to squeeze out costs, weed out weak brands, fo-cus their efforts on those items they believed they could develop into global brands,and reduce the number of versions of a product they manufactured wherever local mar-ket conditions allowed (to help gain scale economies in production).

Exhibit 4 provides a brief profile of selected competitors of Unilever. Other com-petitors included Sara Lee, H. J. Heinz, Kellogg’s, and well over 100 regional and lo-cal food products companies around the world. Many of the leading food productscompanies had a “food-service” division that marketed company products to restau-rants, cafeterias, and institutions (such as schools, hospitals, college student centers,private country clubs, corporate facilities) to gain access to the growing food-away-from-home market.

UNILEVER’S BUSINESSES AND BRAND PORTFOLIOAnalysts familiar with the household products business and with Unilever were skep-tical that there were meaningful strategic and resource fits between food products andhousehold/personal care products. Some saw Unilever’s reorganization into a foodsgroup and a home and personal care group as a possible precursor to the breakup ofUnilever, an outcome denied by Unilever executives.

The Foods division, known as Unilever Bestfoods following the 2000 acquisitionand integration of Bestfoods, was organized around the six product categories: spreadsand dressings; tea and tea-based beverages; culinary products; frozen foods; ice cream;and the global food-service business. The Foods division generated slightly more thanhalf of Unilever’s sales. The Home and Personal Care (HPC) division consisted ofeight categories: deodorants, hair care, household care, laundry, mass skin care, oralcare, personal wash, and fragrances and cosmetics. The Foods Division and the Homeand Personal Care Division were each headed by a director who had global profit re-sponsibility and executive authority for aligning brand strategy with operations world-wide.3 Underneath the division heads were directors for each product category andregional presidents who were responsible for profitability in their respective regions.Both divisions had an executive committee—composed of the division director (actingas chairperson), the directors for each product category, and the regional presidents—that was responsible for the overall results and performance of Unilever. Most researchand new product development activities were integrated into the divisional structure, butthe company had formed a small number of “global innovation centers” to interlink

3Company press release describing the realignment of the senior management structure at Unilever,August 3, 2000.





exhibit 4 Profile of Selected Unilever Competitors

Company (Headquarters) Product Categories/Brands Sales Profits Key Facts

Nestlè (Swiss) • Chocolates and candies (Nestlé, Crunch,KitKat, Smarties, Butterfinger, Cailler,Frigor, Chokito, Galak/Milkybar, Yes,Quality Street, Baci, After Eight, BabyRuth, Lion, Nuts, Rolo, Aero, Polo)

• Dairy (Carnation, Milkmaid, Nespray, Nido,Neslac, Gloria, Bärenmarke)

• Coffee (Nescafé, Taster’s Choice, Bonka,Zoegas, Ricoffy, Loumidis, Coffee-mate)

• Beverages (Nesquik, Nestea, Carnation,Libby’s, Perrier, San Pellegrino, PolandSpring, Calistoga, Vittel, Valvert,Arrowhead, Buxton, Vera)

• Frozen Foods (Stouffer’s, Maggi, Buitoni)• Culinary products (Maggi, Libby’s, Crosse

& Blackwell, Buitoni)• Ice Cream (Nestlé, Frisco, Dairy Farm)• Pet care (Friskies, Fancy Feast, Alpo,

Mighty Dog, Gourmet, Ralston Purina)• Cosmetics (L’Oréal)• Others (PowerBar, Nestlé cereal, Alcon

eye care products)• Food services

2000: Fr 81.4b*1999: Fr 74.7b1998: Fr 71.7b1997: Fr 70.0b1996: Fr 60.5b

2000: Fr 5.76b*1999: Fr 4.72b1998: Fr 4.20b1997: Fr 4.18b1996: Fr 3.59b

World’s largest foodcompany with sales inalmost every country ofthe world; 509 factories;231,000 employees.

Colgate-Palmolive(U.S.)

• Oral care (Colgate toothpaste,toothbrushes, dental floss; Kolynos—LatinAmerica)

• Personal care (Irish Spring, Softsoap,Protex, Palmolive, Speed Stick, Afta,Mennen)

• Household care (Palmolive, Ajax,Murphy’s Oil, Javex)

• Fabric care (Fab, Dynamo, Fleecy,Suavitel, Ajax)

• Pet foods (Hill’s Science Diet andPrescription Diet)

2000: $9.36b1999: $9.12b1998: $8.97b1997: $9.06b1996: $8.75b

2000: $1.06b1999: $0.94b1998: $0.85b1997: $0.74b1996: $0.64b

Sales in over 200countries and territories;70% of sales outsidethe United States; 38%of 2000 sales camefrom new productsintroduced in past fiveyears.

(continued)

Procter & Gamble(U.S.)

• Baby care (Pampers, Luvs)• Laundry products (Tide, Cheer, Downy,

Bounce, Bold, Dreft, Era, Gain, IvorySnow, Ariel)

• Household cleaners (Joy, Cascade, Dawn,Comet, Mr. Clean/Top Job)

• Food/Beverage (Folgers, Jif, Crisco,Pringles, Sunny Delight, Millstone)

• Health and oral care (Crest, Pepto-Bismol,Metamucil, Vicks, Nyquil)

• Feminine care (Always, Tampax)• Paper products (Bounty, Charmin, Puffs)• Personal care (Ivory, Camay, Safeguard,

Zest, Secret, Old Spice, Cover Girl, MaxFactor, Head & Shoulders, Olay, Pert,Vidal Sassoon, Pantene, Physique,Noxema, Hugo Boss)

• Pet care (Iams)

2000: $40.0b1999: $38.1b1998: $37.2b1997: $35.8b1996: $35.3b

2000: $3.54b1999: $3.76b1998: $3.78b1997: $3.42b1996: $3.05b

Sales in over 140countries; on-the-ground operations inmore than 70 countries,110,000 employees;and 300 brands. Tide’smarket share was over4 times larger than itsnearest competitor; Ariellaundry detergent wassold in 115 countries(with the highest orsecond highest share in25 countries). Tide andAriel had combinedsales greater than anyother P&G brand.

*Swiss francs.





exhibit 4 (continued)


Kraft Foods (U.S.)—a subsidiary ofPhilip MorrisCompanies

• Chocolates and candies (Life Savers,Creme Savers, Altoids and GummiSavers; Cote d’Or, Terry’s, Gallito, Milka,and Toblerone chocolate and confec-tionery products; Jell-O ready-to-eatrefrigerated desserts)

• Snacks and crackers (Nabisco, Oreo,Chips Ahoy!, SnackWell’s cookies; Ritz,Premium, Triscuit, Wheat Thins, CheeseNips; Planters nuts; Balance Bar nutritionand energy snacks; Lyux salty snacks;Terrabusi, Canale, Club Social, Cerealitas,Trakinas, Lucky biscuits)

• Meats (Oscar Mayer and Louis Rich coldcuts, hot dogs and bacon; Boca Burgersoy-based meat alternatives; Simmenthalmeats in Italy)

• Cereals (Post Raisin Bran, Grape-Nutsand other ready-to-eat cereals; Cream ofWheat and Cream of Rice)

• Culinary products (Jell-O, Cool Whipfrozen whipped topping; Miracle Whip;Kraft and Good Seasons salad dressings;A-1 steak sauce; Kraft and Bull’s-Eyebarbecue sauces; Grey Poupon premiummustards; Claussen pickles; Royal drypackaged desserts and baking powder;Kraft and ETA peanut butter; Vegemiteyeast spread, Miracoli pasta dinners andsauces, Shake ’N Bake coatings)

• Convenient meals (DiGiorno, Tombstone,Jack’s, and Delissio frozen pizzas; Kraftmacaroni & cheese dinners; Minute rice,Stove Top meal kits; Lunchables)

• Beverages (Maxwell House, GeneralFoods International Coffees, Yuban,Jacobs, Gevalia, Carte Noire, JacquesVabre, Kaffe, HAG, Grand’ Mere, Kenco,Saimaza, and Dadak coffees; Capri Sun,Tang, Crystal Light, Country Time, Royal,Verao, Fresh, Frisco, Q-Refres-Ko, and Ki-Suco powdered soft drinks; SuchardExpress, O’Boy, Milka and Kaba chocolatedrinks)

• Cheeses (Kraft, Velveeta, Cracker Barrel,Eden, and Dairylea cheeses; Philadelphiacream cheese, Cheez Whiz processcheese sauce; Knudsen and Breakstone’scottage cheese and sour cream)

2000: $26.5b1999: $26.8b1998: $27.3b1997: $27.7b1996: $27.9b

2000: $4.62b†1999: $4.25b1998: $4.18b1997: $4.20b1996: $3.36b

International salesaccounted for about35% of the total; Krafthad 228 manufacturingplants (147 outside theUnited States) and 550distribution centers anddepots (176 outside theUnited States); in theUnited States, Kraftbrands had number onemarket share rankingbased on dollar volumein 23 grocery and foodcategories; ininternational markets,Kraft brands werenumber one based onunit volume in one ormore countries in 10product categories.

(continued)

†Operating earnings—Philip Morris does not report net income separately for its business divisions.





with R&D at the division level and the company’s worldwide brand innovation orga-nization. Unilever’s local companies were the key interface with customers and con-sumers, responding to local market needs. Unilever executives saw the formation oftwo global divisions as having three benefits:

• Improving the company’s focus on foods and HPC activities regionally andglobally.

• Accelerating decision making and execution through tighter alignment of brandstrategy with operations.

• Strengthening innovation capability through more effective integration of R&Dinto the divisional structure and the creation of global innovation centers.

As part of the company’s organizational restructuring, Unilever was closing 100plants in Europe and North America, and trimming 25,000 jobs to concentrate production

exhibit 4 (continued)


Groupe Danone(France)

• Dairy (Danone and Dannon yogurts,cream cheese, yogurt-style cheeses,and fresh dairy desserts, Actimel,Galbani, La Serenisima)

• Bottled water (Evian, Volvic, Aqua,Boario, Crystal Springs, Ferrarelle)

• Biscuits and crackers (LU, Bagley,Danone, Opavia, Bolshevik, Jacobs,Saiwa, Britannia, Griffin’s, severalothers)

• Culinary (Lea & Perrins, HP steak sauce,Amoy Asian products)

• Baby foods (Blédini—France)• Cheese (Galbani—Italy)

2000: €14.3b1999: €12.9b1998: €13.5b1997: €12.8b1996: €12.1b

2000: €721m1999: €598m1998: €559m1997: €506m1996: €325m

World leader in freshdairy products (15.1%share worldwide);bottled waters have anumber one marketshare in severalcountries and a 10.8%share worldwide; LUcrackers was thenumber one brand inseveral countries inAsia-Pacific region; hada 9% market share inbiscuits/crackersworldwide. Sales in 120countries (38% outsidethe European Union);148 production plants,86,000 employees.

Campbell’s Soup(U.S.)

• Soups (Campbell’s, Healthy Request,Simply Home, Swanson’s broth, Liebeg,Erasco, Homepride, Stock Pot)

• Bakery (Pepperidge Farm, Arnott’s)• Culinary (Pace, V8, Prego, Swanson’s,

Franco-American, Homepride PastaBake, Kimball sauces)

• Chocolates (Godiva)

2000: $6.27b1999: $6.42b1998: $6.70b1997: $7.96b1996: $7.68b

2000: $714m1999: $724m1998: $660m1997: $713m1996: $802m

Campbell’s was thenumber one wet soupbrand in the world;Arnott’s was the marketleader in biscuits andcrackers in Australiaand was the numbertwo brand in NewZealand; Pace, Liebeg,V8, Pepperidge Farm.Erasco, and Homepridewere also the marketleaders in theirsegments.

(continued)





at 150 key sites and 130 ancillary sites. Efficiencies and cost savings associated with con-solidating manufacturing were a key part of the company’s Path to Growth plan to real-ize annual savings of €1.5 billion (after restructuring charges of €5.0 billion). In 2000,Unilever spent about €1.2 billion for R&D and €6.5 billion on advertising and brandspromotions. Unilever’s ice cream and beverage categories had a bad year in 2000, withlosses increasing from €22 million in the third quarter to €60 million in the fourth quar-ter, following a poor summer in Europe. Unilever said it “had a cracking year” in Asia,while in Latin America management characterized the performance as “a good recovery.”Interest charges in 2000 rose sharply to €632 million, up from €14 million in 1999, owingto the debt-financed acquisitions.

The company had reduced its brand portfolio from 1,600 to 970 as of February2001, with the top 400 accounting for 78 percent of total revenues in 2000. An addi-tional 250–300 brands had been targeted for pruning by 2002. Another 200 had beendesignated as suitable for “merger and migration” into the product families of the top400 brands. According to Niall FitzGerald, “This [migration] is a complex process. Noone else has [done it] on this scale. It is easy to change a name—the marketing chal-lenge is to bring the consumer with you.”4 Also, by year-end 2000, 20 of the planned100 factories had been closed, with related workforce reductions of 5,300 people.

Some analysts had criticized Unilever for paying too much for several of its ac-quisitions. For example, Unilever paid a purchase price of €715 million to acquireAmora Maille (equal to 16.6 times Amora Maille’s 1999 operating earnings of €43million)—a price well above the earnings multiples commanded by other food busi-nesses and an amount said to be double what the present owners paid to acquire AmoraMaille from Group Danone in 1997. Unilever paid 14.1 times EBITDA (earnings



General Mills/Pillsbury (U.S.)

• Flours and baking mixes (Pillsbury,Martha White, Gold Medal, Bisquick,Robin Hood)

• Snacks and Beverages• Ice cream and dairy (Häagen-Dazs,

Yoplait and Trix yogurts)• Desserts (Betty Crocker)• Cereals (Cheerios, Wheaties, Total,

Lucky Charms, Trix, Cocoa Puffs, manyothers)

• Frozen and refrigerated foods (GreenGiant, Totino’s, Pillsbury, Jeno’s)

• Dinner mixes (Betty Crocker, HamburgerHelper, Farmhouse)

• Culinary (Progresso soups, Old El PasoMexican foods, Green Giant)

• Snacks (Chex Mix, Nature Valley, PopSecret)

• Food service

2000: $6.70b1999: $6.25b1998: $6.03b1997: $5.61b1996: $5.42b

2000: $614m1999: $535m1998: $422m1997: $445m1996: $476m

The acquisition ofPillsbury in 2001 madeGeneral Mills a $13billion company with awider and strongerproduct/brand portfolio;still, about 95% of saleswere in the UnitedStates.

Source: Compiled by the case researcher from company websites and company documents.

4Quoted in “Unilever Unveils ‘Big Hit’ Innovations, Brand Cull Progress,” Euromarketing via E-mail 4,no. 3 (February 9, 2001).





before interest, taxes, depreciation, and amortization) for Bestfoods—a record high fora foods company and above the 12.8 times EBITDA that Philip Morris/Kraft paidfor Nabisco and the 12.1 times EBITDA that PepsiCo paid for Tropicana in 1999.Unilever defended its price for Amora Maille, saying it was justified based on the su-perior growth prospects the business would deliver relative to other grocery productsand on the 19.3 times EBIT (earnings before interest and taxes) that PepsiCo paid forTropicana in 1999 and the 16.5 times EBIT that Frito-Lay paid for Australia-basedSmith’s Snackfoods Company in 1997.

THE SLIMFAST ACQUISITIONTwo months after announcing the new Path to Growth strategy in February 2000,Unilever negotiated an agreement to acquire SlimFast diet foods for $2.3 billion cash.SlimFast, a privately held company headquartered in Miami, Florida, was the U.S.market leader, with a 45 percent market share, in the $1.3 billion North Americanweight management and nutritional supplement industry. The company’s nearest com-petitor had a market share of just over 25 percent. SlimFast had sales of $611 millionin 1999, up 20 percent over 1998 (see Exhibit 5); the company’s net assets totaled $160million at the time of acquisition. SlimFast’s ready-to-drink selections (72 percent oftotal sales), powders (16 percent), and bars (12 percent) all had the leading positions intheir category segments. An estimated 2 million U.S. consumers used SlimFast prod-ucts daily, and an additional 5 million used SlimFast products occasionally. About 94percent of SlimFast’s sales were in North America. Studies showed the SlimFast brandname had an unaided 89 percent recognition rate among U.S. consumers. SlimFastproduced a portion of its products at a company-owned manufacturing facility in Ten-nessee and sourced the remainder from contract suppliers. It had a strong sales and dis-tribution network, having been successful in gaining shelf space in most supermarketsand drugstores, and had spent over $400 million on advertising and promotion duringthe past four years.

The company’s products were made from “natural ingredients” supplemented withadded vitamins and minerals to provide a strong nutritional profile—no appetite sup-pressants were used. Promotional efforts centered on the themes of good health, bal-anced nutrition, great taste, and convenient product formats (ready-to-drink products,powders, and bars). SlimFast had conducted extensive clinical trials to validate the per-formance of its products. The company had a strong physician education program and

exhibit 5 Selected Financial Performance Statistics for SlimFast,1997 through the First Quarter of 2000 (dollars in millions)

1997 1998 1999 Q1 2000

Sales revenues $390 $505 $611 $194*Advertising and promotional expenditures 87 102 142 n.a.Earnings before interest, taxes, depreciation, and amortization (EBITDA) 78 117 133 n.a.Earnings before interest and taxes (EBIT)—operating profits 76 112 125 39†EBIT % (operating profit margin) 19.4% 22.2% 20.5% 20.1%

*Up 21% over Q1 1999.

†Up 28% over Q1 1999.

Source: www.unilever.com, April 17, 2001.




THE BEN & JERRY’S ACQUISITION


enjoyed good relationships with the U.S. Food and Drug Administration (FDA) andother regulatory agencies.

Unilever was attracted to SlimFast because the company was growing about 20percent annually and because people all across the world were increasingly interestedin living a longer, healthier, and more vital life. Market research indicated that in theUnited States, Germany, and the United Kingdom nutrition was the number one dietaryconcern and that weight was number three. In the United States, Western Europe, Aus-tralia, and the largest cities in the rest of the world, between 40 and 55 percent of thepopulation were overweight and 15 to 25 percent were obese. According to the WorldHealth Organization, the number of people who were either overweight or obese wasincreasing at an alarming rate.

Unilever management saw opportunities to use the company’s global distributioncapabilities to introduce SlimFast in Europe, Australia, and cities in developing coun-tries, perhaps doubling SlimFast’s sales within two to three years. According to inde-pendent market research, the world market for diet products and nutritional foods wasabout $31.7 billion annually and was growing annually at 11.3 percent. Unilever execu-tives believed SlimFast products would appeal to weight-conscious Europeans; accord-ing to co-chairman Antony Burgmans, “Europe at the moment is underdeveloped. Weare in a perfect position to boost the presence of this brand.”5 Company projections indi-cated that SlimFast would begin to contribute positively to Unilever’s cash flows in 2002and to earnings in 2003. Unilever believed that SlimFast had a strong management team.

After considering offers from Unilever, Diageo (at the time, the parent company ofarch-rival Häagen-Dazs), Nestlé, Roncadin (an Italian company), and Dreyer’s (a rivalmaker of super premium ice cream products and a long-time distributor of Ben &Jerry’s products), the board of directors of Ben & Jerry’s Homemade, Inc., in April2000 agreed to accept Unilever’s offer of $43.60 for all of the company’s 7.48 millionshares, resulting in an acquisition price of $326 million. The $43.60 price representeda premium of 23 percent over the closing price the day prior to the announcement ofthe agreement and was well above the $15.80 to $20.00 range the stock traded in priorto the five buyout offers becoming public knowledge in December 1999. Exhibit 6shows Ben & Jerry’s recent financial highlights. The Ben & Jerry’s acquisition putUnilever in the high-end superpremium segment of the ice cream market for this firsttime and made Unilever the world’s large marketer of ice cream products.

Company BackgroundBen & Jerry’s began active operations in 1978 when Ben Cohen and Jerry Greenfield,two former hippies with counterculture lifestyles and very liberal political beliefs,opened a scoop shop in a renovated gas station in Burlington, Vermont. Soon there-after, the cofounders decided to package their ice cream in pint cartons and wholesalethem to area groceries and mom-and-pop stores—their logo became “Vermont’s FinestAll Natural Ice Cream” and the carton design featured a picture of the cofounders onthe lid and unique handstyle lettering to project a homemade impression. The cartonswere inscribed with a sales pitch by Ben and Jerry:

This carton contains some of the finest ice cream available anywhere. We know becausewe’re the guys who made it. We start with lots of fresh Vermont cream and the finest

5Quoted in an article by Mark Bendeich, “Unilever Buys U.S. Health Foods Firm for $2.3 billion,” andposted at www.economictimes.com, April 12, 2000.





flavorings available. We never use any fillers or artificial ingredients of any kind. With ourspecially modified equipment, we stir less air into the ice cream, creating a denser, richer,creamier product of uncompromising high quality. It costs more and it’s worth it.

A Time magazine article on the superpremium ice cream craze appeared in August1981 with the opening sentence, “What you must understand is that Ben & Jerry’s inBurlington, Vermont, makes the best ice cream in the world.” Sales at Ben & Jerry’stook off, rising to $10 million in 1985 and to $78 million in 1990. By 1994, Ben &Jerry’s products were distributed in all 50 states, the company had 100 scoop shops,and it was marketing 29 flavors in pint cartons and 45 flavors in bulk cartons.

Products and Operations in 2000Headquartered in Burlington, Vermont, Ben & Jerry’s in 2000 produced and marketedover 50 superpremium ice cream flavors, ice cream novelties, low-fat ice creamflavors, low-fat frozen yogurts, and sorbets, using Vermont dairy products and high-quality, all-natural ingredients. Like other superpremium ice creams, Ben & Jerry’sproducts were high in calories (about 300 per serving), had a fat content equal to 40 to55 percent of the recommended daily allowance for saturated fat per serving, and werehigh in cholesterol content (20 to 25 percent of the recommended daily allowance).About 35 of the flavors were packaged in pint cartons for sale in supermarkets, grocery

exhibit 6 Financial Performance Summary, Ben & Jerry’s Homemade, Inc., 1994–99(in thousands except per share data)

1999 1998 1997 1996 1995 1994

Income statement dataNet sales $237,043 $209,203 $174,206 $167,155 $155,333 $148,802Cost of sales 145,291 136,225 114,284 115,212 109,125 109,760Gross profit 91,752 72,978 59,922 51,943 46,208 39,042Selling, general &

administrative expenses 78,623 63,895 53,520 45,531 36,362 36,253Special charges* 8,602 6,779Other income (expense)—net 681 693 (118) (77) (441) 228Income (loss) before income taxes 5,208 9,776 6,284 6,335 9,405 (3,762)Income taxes 1,823 3,534 2,388 2,409 3,457 (1,869)Net income (loss) 3,385 6,242 3,896 3,926 5,948 (1,869)Net income (loss) per share—diluted $ 0.46 $ 0.84 $ 0.53 $ 0.54 $ 0.82 $ (0.26)Shares outstanding—diluted 7,405 7,463 7,334 7,230 7,222 7,148

Balance sheet dataWorking capital $ 42,805 $ 48,381 $ 51,412 $ 50,055 $ 51,023 $ 37,456Total assets 150,602 149,501 146,471 136,665 131,074 120,296Long-term debt and capital lease

obligations 16,669 20,491 25,676 31,087 31,977 32,419Stockholders’ equity† 89,391 90,908 86,919 82,685 78,531 72,502

*The special charge in 2000 concerned a writedown of Springfield, Vermont, plant assets and employee severance costs associated withoutsourced novelty ice cream products. The 1994 charge stemmed from early replacement of certain software and equipment installed atthe plant in St. Albans, Vermont, and included a portion of the previously capitalized interest and project management costs.

†No cash dividends have been declared or paid by the company on its capital stock since the company’s organization in 1978. Earningswere used to provide needed working capital and to finance future growth.

Source: Company annual reports.





stores, and convenience stores; the rest were packaged in bulk tubs for sale in about200 franchised and company-owned Ben & Jerry’s scoop shops, restaurants, and food-service accounts. To stimulate buyer interest, the company came up with attention-getting names for its flavors: Chunky Monkey, Chocolate Chip Cookie Dough,Bovinity Divinity, Coconut Cream Pie, Chubby Hubby, Double Trouble, Totally Nuts,and Coffee Olé. Many of the flavors contained sizable chunks of cookies or candies, astandout attribute of the company’s products. Retail prices for a pint of Ben & Jerry’swere around $3.25 in May 2001.

At year-end 1999, Ben & Jerry’s had 164 franchised scoop shops; 8 PartnerShopfranchises (not-for-profit organizations that operated scoop shops); 19 Featuring Fran-chises (scoop shops within airports, stadiums, college campus facilities, and similarvenues); 12 Scoop Station franchises (prefabricated units that operated within otherlarge retail establishments); and 9 company-owned scoop shops (4 in Vermont, 2 inLas Vegas, and 3 in Paris, France). Internationally, there were nine franchised Ben &Jerry’s scoop shops in Israel, four in Canada, three in the Netherlands, one in Lebanon,and one in Peru. The company began exporting from its Vermont plants to Japan in1997, selling single-serve containers through an exclusive arrangement with 7-ElevenJapan. In 1999, it established a wholly owned subsidiary in Japan for the purpose ofimporting, marketing, and distributing its products through Japanese retail grocerystores. Beginning in January 2000, Ben & Jerry’s imported all products into Japanthrough an agreement with a Japanese trading company.

Distribution The company’s products were distributed throughout the UnitedStates and in several foreign countries. Company trucks, along with several local dis-tributors, handled deliveries to retailers in Vermont and upstate New York. In the restof the United States, Ben & Jerry’s relied on distribution services provided by other icecream manufacturers and marketers. It was the distributors’ job to sell retailers onstocking a brand, deliver supplies to each retail location, and stock the freezer caseswith the agreed-on flavors and number of facings. Up until 1998, Ben & Jerry’s uti-lized two primary distributors, Sut’s Premium Ice Cream for much of New Englandand Dreyer’s Grand Ice Cream for states in the Midwest and West. To round out its na-tional coverage, the company had a number of other distributors that serviced limitedmarket areas. In 1994, Dreyer’s accounted for 52 percent of Ben & Jerry’s net sales.The arrangement with Dreyer’s was somewhat rocky, and in 1998 Ben & Jerry’s beganredesigning its distribution network to gain more company control. Under the redesign,Ben & Jerry’s increased direct sales calls by its own sales force to all grocery andconvenience store chains and set up a network where no distributor had a majority per-centage of the company’s sales. Starting in 1999, much of the distribution responsibil-ity in certain territories was assigned to Ice Cream Partners (a joint venture of Nestléand Pillsbury, the parent of Häagen-Dazs); the balance of U.S. deliveries was assignedto Dreyer’s and several other regional distributors, but Dreyer’s territory was smallerthan before and entailed Ben & Jerry’s receiving a higher price than formerly for prod-ucts distributed through Dreyer’s.

Manufacturing Ben & Jerry’s operated three manufacturing plants, two shifts aday, five to seven days per week, depending on demand requirements. Superpremiumice cream and frozen yogurt products packed in pint cartons were manufactured at thecompany’s Waterbury, Vermont, plant. The company’s Springfield, Vermont, plant wasused for the production of ice cream novelties and ice cream, frozen yogurt, low-fat icecream, and sorbets packaged in bulk, pints, quarts, and half gallons. The St. Albans,Vermont, plant manufactured superpremium ice cream, frozen yogurt, frozen smooth-ies, and sorbet in pints, 12-ounce, and single-serve containers. Beginning in October





1999, in order to reduce costs and improve its profit margins, the company ceased pro-duction of ice cream novelties at its Springfield plant and began outsourcing its re-quirements from third-party co-packers.

CompetitorsBen & Jerry’s two principal competitors were Dreyer’s/Edy’s (which had introducedits Dreamery and Godiva superpremium brands in 1999) and Häagen-Dazs (part ofPillsbury—which was formerly a subsidiary of Diageo but which was acquired byGeneral Mills in 2000—see Exhibit 3). Other significant frozen dessert competitorswere Colombo frozen yogurts (a General Mills brand), Healthy Choice ice creams (aConAgra brand), Breyer’s ice creams and frozen yogurts (Unilever), Kemps ice creamand frozen yogurts (a brand of Marigold Foods), and Starbucks (whose coffee icecream flavors were distributed by Dreyer’s). In the ice cream novelty segment, Ben &Jerry’s products (S’Mores, Phish Sticks, Vanilla Heath Bar Crunch pops, CookieDough pops, Cherry Garcia frozen yogurt pops, and several others) competed withHäagen-Dazs bars, Dove bars (made by a division of Mars, Inc.), Good Humor bars (aUnilever brand), an assortment of Nestlé products, and many private-label brands.

Häagen-Dazs was considered the global market leader in the superpremium seg-ment, followed by Ben & Jerry’s. Ben & Jerry’s had only a negligible market share inice cream novelties and a low single-digit share of the frozen yogurt segment. Whereasclose to 90 percent of Ben & Jerry’s sales were in the United States, Häagen-Dazs wasrepresented in substantially more foreign markets, including markets in Europe, Japan,and other Pacific Rim countries. Like Ben & Jerry’s, Häagen-Dazs marketed severalice cream flavors using pieces of cookies and candies as ingredients.

Management and CultureSince 1988 Ben & Jerry’s had formalized its business philosophy by adopting and pur-suing a three-part mission statement:

• Product mission: To make, distribute, and sell the finest quality all-natural icecream and related products in a wide variety of innovative flavors made from Ver-mont dairy products.

• Economic mission: To operate the company on a sound financial basis of prof-itable growth, increasing value for our shareholders, and creating career opportu-nities and financial rewards for our employees.

• Social mission: To operate the company in a way that actively recognizes thecentral role that business plays in the structure of society by initiating innovativeways to improve the quality of life of a broad community—local, national, andinternational.

Pursuing the Company Mission The three parts of the mission weredeemed equally important, and management strived to integrate their pursuit in its day-to-day business decision making. Starting in 1988, the company’s annual report hadcontained a “social report” on the company’s performance during the year, with em-phasis on workplace policies and practices, concern for the environment, and the so-cial mission accomplishments. To support its social mission activities, Ben & Jerry’shad a policy of allocating 7.5 percent of pretax income (equal to $1.1 million in 1999)to support various social causes through the Ben & Jerry’s Foundation, corporategrants made by the company’s director of social mission development, and employee





community action teams. In addition, the company made a practice of sourcing someof its ingredients from companies that gave jobs to disadvantaged individuals whowould otherwise be unemployed, strived to operate in an environmentally friendlymanner, and partnered with environmentally and socially conscious organizationsworking to make the world a healthier and more humane place. Over the years, thecompany had been actively involved with hundreds of grassroots organizations work-ing for progressive social change, including Greenpeace, the Children’s Defense Fund,the National Association of Child Advocates, the Coalition for Environmentally Re-sponsible Economies, the Environmental Working Group, and the Institute for Sus-tainable Communities. It had contributed to efforts to save the rain forests in Brazil.One day each year, the company hosted a “free cone day” at its scoop shops as a wayof thanking customers for their patronage.

Ben & Jerry’s had selected Vermont communities with high unemployment ratesfor all three of its plants. It had created a blueberry ice cream so it could buy blueberriesexclusively from a tribe of Maine Indians and help support their economy. In 1991, Ben& Jerry’s had entered into an agreement with St. Albans Cooperative Creamery (a groupof Vermont dairy farmers) to pay not less than a specified minimum price for its dairyproducts in order to bring prices up to levels the company deemed fair and equitable. In1994, this agreement was amended to include, as a condition of paying the premiumprice, assurance that the milk and cream purchased by the company would not comefrom cows that had been treated with recombinant bovine growth hormone (rBGH), asynthetic growth hormone approved by the FDA. The company quit selling a handmadebrownie-and-ice-cream sandwich upon discovering that workers’ hands were develop-ing repetitive strain injuries. In 1999, Ben & Jerry’s became the first U.S. ice creamcompany to convert a significant portion of its pint containers to a more environmen-tally friendly unbleached paperboard. (Bleaching paper with chlorine to make it whiterwas said to be one of the largest causes of toxic water pollution in the United States.)

Company Culture The work environment at Ben & Jerry’s was characterized byinformality, casual dress, attempts to make the atmosphere fun and pleasurable, andfrequent communications between employees and management. Ben Cohen was notedfor not owning a suit. Efforts were made to treat employees with fairness and respect;employee opinions were sought out and given serious consideration. Rank and hierar-chy were viewed with distaste, and until the late 1990s executive salaries were cappedat no more than seven times the pay for entry-level jobs. Compensation levels wereabove average, compared to pay scales in the Vermont communities where Ben &Jerry’s operated. Ben & Jerry’s had instituted a very liberal benefits package for itsnearly 850 employees that included health benefits for the gay or lesbian partners ofemployees, maternity leave for fathers as well as mothers, leave for the parents ofnewly adopted children, $1,500 contributions toward adoption costs, on-site choles-terol and blood pressure screening, smoking cessation classes, tuition reimbursementfor three classes per year, a profit-sharing plan, a 401(k) plan, an employee stock pur-chase plan that allowed employees to buy shares 15 percent below the current marketprice, a housing loan program, a sabbatical leave program, free health club access, andfree ice cream. Nonetheless, the company had experienced occasions where employ-ees expressed dissatisfaction with one or another aspects of their jobs; the periodicmeetings management held to discuss issues and concerns with employees had oftenprovoked hot debates.

Ben & Jerry’s had long prided itself on treating workers so fairly that they did notneed and would not want to be represented by a union. But in late 1998 the companybecame embroiled in a union controversy at its St. Albans plant, where the Interna-tional Brotherhood of Electrical Workers (IBEW) was trying to organize a group of 19





maintenance workers. Management refused the IBEW’s request to recognize the unionvoluntarily. Company lawyers, appearing before the National Labor Relations Board(NLRB), opposed the IBEW organizing attempt, arguing that the vote should be heldamong all workers at the plant, not just among the 19 maintenance workers. Produc-tion workers, who made up the majority of the plant’s workforce, did not support theunion’s organizing effort as strongly. In early 1999, following an NLRB ruling that themaintenance workers at the St. Albans plant were an appropriate bargaining unit, the19 maintenance workers voted narrowly for representation by the IBEW. Even thoughthe 19 workers constituted less than 3 percent of the company’s full-time workforce,top management at Ben & Jerry’s was concerned that the voting outcome raised ques-tions about the quality of employer-employee relations at Ben & Jerry’s.

Management Changes When Ben Cohen, the creative driving force in thecompany from the beginning, decided to step down as CEO in 1994, the search for areplacement included an essay contest in which anyone wishing to be considered forthe CEO position was asked to state in 100 words or less “why I want to be a greatCEO for Ben & Jerry’s.” Robert Holland, a former consultant at McKinsey & Co., wasselected to become the company’s CEO in February 1995; he helped transition thecompany from a founder-led to a professional management structure and helped beginthe company’s ventures into international markets. Holland resigned in October 1996,partly because of growing disagreements with the founders over how the company wasbeing operated; he was replaced by Perry Odak, who had held senior management po-sitions at Armour-Dial, Atari, Jovan, Dellwood Foods (a dairy products company), and,most recently, at U.S. Repeating Arms Co. (the maker of Winchester firearms) andBrowning, a manufacturer of firearms and other sporting goods.

Company Image and Events Leading Up to the Acquisition Ben &Jerry’s counterculture values, unconventional policies, and passionate commitment tosocial causes were widely known and, in many respects, had emerged as the com-pany’s biggest brand asset. Frequent and usually favorable stories in the New Englandand national press describing Ben & Jerry’s proactive approach to “caring capitalism”had fostered public awareness of the company and helped mold a very positive imageof the company and its business philosophy. Indeed, substantial numbers of the com-pany’s customers patronized Ben & Jerry’s ice cream products because they were sus-picious of giant corporations, shared many of the same values and beliefs about how acompany ought to conduct its business, and wanted to support the company’s effortsand good deeds. So strong was the anti-big-business feeling of some customers, em-ployees, and shareholders that, when the press reported Ben & Jerry’s was consideringvarious acquisition offers, there were protest rallies at company facilities in Vermontand a Save Ben & Jerry’s website (www.savebenandjerrys.com) sprang up for follow-ers to express their displeasure and to help mount a public relations campaign to blocka sale. Hundreds of messages were posted at the site—one message said, “My friendand I will not buy Ben & Jerry’s again if you sell out. It would not taste the same.”Most messages conveyed concerns that Ben & Jerry’s would lose its character and so-cial values, ceasing to be a model for other businesses to emulate. Vermont’s governortold Reuters, “This company has really come to symbolize Vermont to the country andthe world. It would be a shame if it were sucked into the corporate homogenizationthat’s taking over the planet.”6

Reportedly, neither Ben Cohen nor Jerry Greenfield was enthusiastic about sellingthe company; both had publicly expressed their desires for the company to remain in-

6Quoted in an article by Mike Mills in The Vermont Post, December 9, 1999.




THE BESTFOODS ACQUISITION


dependent. But the company’s languishing stock price and the attractive offers of in-terested buyers forced the board of directors to consider being acquired. To counter anoffer of $38 per share from Dreyer’s, Ben Cohen had entered into negotiations withMeadowbrook Lane Capital (one of the company’s large shareholders) and others totake the company private. This fell through when Unilever made its offer of $43.60 pershare. In agreeing to accept Unilever’s price, Cohen netted over $39 million for hiscontrolling interest in the company, while Odak received over $16 million and Green-field got $9.6 million. A substantial fraction of Ben & Jerry’s 11,000 shareholders wereVermont (or former Vermont) residents.

Developments Following the AcquisitionTo win approval for the acquisition from the cofounders and the board, Unileveragreed to keep Ben & Jerry’s headquarters in Vermont, to operate the company sepa-rately from Unilever for a period of time, to maintain employment at current levels forat least two years, to hold employee benefits at current levels for at least five years, andto contribute 7.5 percent of pretax income annually to the Ben & Jerry’s Foundation(historically, the foundation had been managed by a nine-member employee board ofdirectors that considered proposals relating to children and families, disadvantagedgroups, and the environment). Unilever further agreed to form an independent 11-member board of directors for Ben & Jerry’s to monitor how well these conditionswere being met, with 8 of the board members to be named by Ben & Jerry’s manage-ment, 1 by Unilever, and 2 by Meadowbrook Lane Capital. Ben Cohen and JerryGreenfield were also to continue to have active roles in management.

In a joint statement announcing the acquisition, Unilever’s co-chairmen said, “Ben& Jerry’s is an incredibly strong brand name with a unique consumer message. We aredetermined to nurture its commitment to community values.” Ben Cohen said, “Thebest and highest use for Ben & Jerry’s is to try to influence what goes on at Unilever.It’s a gargantuan task. Who knows how far we’ll get? Who knows how successfulwe’ll be?”

In November 2000, Unilever announced that Yves Couette had been appointedCEO of Ben & Jerry’s, to succeed existing CEO Perry Odak. Couette, a native ofFrance, was one of the top executives in Unilever’s ice cream group and had workedin the United States, Mexico, Indonesia, and the United Kingdom. Couette had re-cently been managing director of Unilever’s ice cream business in Mexico, where hehad turned Unilever’s Helados Holanda business into a solid success with distinctivelocal brands and scoop shops. In commenting on his appointment, Couette said,

Ben & Jerry’s is a unique company, with highly professional and committed people fromwhom I look forward to learning and connecting to Unilever’s world-class knowledgeof ice cream. In addition, I am determined to deliver on Ben & Jerry’s social missioncommitment.

Perry Odak remained with the company until January 2001 to assist Yves Couette inthe transition.

Bestfoods was a global company engaged in manufacturing and marketing consumerfoods. The company had offices and manufacturing operations in 60 countries and mar-keted its products in 110 countries. About 60 percent of the company’s $8.6 billion insales in 1999 came from outside the United States. Bestfoods employed approximately





44,000 people, of which about 28,000 were at non-U.S. locations. Food industry ana-lysts considered Bestfoods to be one of the best-managed American food companies,and it was one of the 10 largest U.S.-based food products companies at the time it wasacquired by Unilever. Once known as CPC International, the company renamed itselfBestfoods after spinning off its cyclical $1.5 billion corn refining business in late 1997.

Exhibit 7 shows Bestfoods’ product portfolio in mid-2000 when Unilever first of-fered to acquire the company. During the decade of the 1990s, Bestfoods had grownrevenues at a 7.8 percent annual rate, operating earnings at a 10.5 percent annual rate,and earnings per share at a 12.1 percent annual rate; the company had increased its div-idends for 14 consecutive years. Growth had slowed during the 1997–99 period, how-ever. In 1999, Bestfoods’ sales were up 2.7 percent over 1998, unit volumes were up4.1 percent, and operating income was up 9.0 percent (see Exhibit 8). Bestfoods’ cor-porate strategy had four core elements:

• Globalization of the company’s core consumer businesses—the Knorr productline, salad dressings, and food-service operations.

• Continual improvement in cost-effectiveness.

• Seeking out and exploiting new market opportunities (via both new product intro-ductions and extending sales of existing products to additional country markets).

• Using free cash flow to make strategic acquisitions. Since the 1980s, Bestfoodshad made over 60 acquisitions to expand its lineup of products and brands and toposition the company in new geographic markets.

Exhibits 9 and 10 show Bestfoods’ recent performance and market positions in variouscountry markets.

After several weeks of back-and-forth negotiations and increases in Unilever’s of-fer price from the $61–$64 per share range to $66 per share to $72 per share and finallyto $73 per share, Bestfoods in June 2000 agreed to be acquired by Unilever for whatamounted to $20.3 billion in cash (equivalent to €23.6 billion), plus assumption ofBestfoods net debt (which amounted to $3.1 billion as of June 30, 2000). The $73 pershare buyout agreement represented a price 44 percent higher than the nearly $51 priceat which Bestfoods’ shares were trading before Unilever’s overtures became public andrepresented about a 20 percent premium over the $59–$62 range where Bestfoodsshares were trading in late 1999. Bestfoods was, by far, the largest acquisition ever un-dertaken by Unilever and the largest combination of food companies in 12 years.

Unilever management believed that combining and integrating the operations ofBestfoods and Unilever would “result in pre-tax cost savings of approximately $750million annually through combined purchase savings, greater efficiencies in operationsand business processes, synergy in distribution and marketing, streamlining of generaland administrative functions, and increased economies of scale.” In addition, manage-ment said that the complementary nature of Unilever’s and Bestfoods’ product portfo-lios and geographic market coverage better positioned the combined company forfaster revenue growth through:

• Creating a “more robust” combined business in the U.S. market.

• Maximizing the complementary strengths of Unilever and Bestfoods in Europe.

• Building on the strength of Bestfoods in Latin America to accelerate the growth ofUnilever’s brands.

• Using Unilever’s distribution network strengths in the Asia-Pacific area to growthe sales of Bestfoods’ brands.

• Utilizing Bestfoods’ food-service channel to gain increased sales for Unilever’sportfolio of spreads, teas, and culinary products.





exhibit 7 Bestfoods Product Portfolio, June 2000

Products/Brands Comments

Hellmann’s mayonnaise and salad dressings; Bestfoods, Worldwide sales of about $2 billion, with the leading Lady’s Choice, and Lesieur mayonnaise and salad market share in mayonnaise in North America, Latin dressings; Dijonnaise creamy mustard; Henri’s and America, and many countries of Asia and Europe. In Western salad dressings parts of the United States, Hellmann’s products were

marketed under the Bestfoods brand; Lesieurmayonnaise products were marketed in France andhad the second highest market share in that country.

Knorr dry soups, sauces, bouillons, and related products Worldwide sales of about $3 billion. Knorr productswere sold in virtually all of the 110 countries whereBestfoods had a market presence. It was the numbertwo soup brand, behind Campbell’s.

Mazola corn and canola oils and Mazola margarine; Marketed in 35 countries.Mazola No-Stick and Pro Chef cooking sprays; RightBlend oils

Skippy peanut butter One of the leading brands in the United States andalso strong in parts of Asia

Karo and Golden Griddle syrups

Argo, Kingsford’s, Canada, Benson’s, and Maziena The Maziena brand of corn starch and other basic corn starches nutritional foods was marketed primarily in Latin

America.

Mueller’s pastas

Rit dyes and laundry products

Entemann’s bakery goods; Thomas’ English muffins; The Bestfoods Baking division was the largest baker Arnold, Brownberry, Oroweat, and Freihofer’s breads; of fresh premium products in the United States; Boboli pizza crusts Entemann’s was the number one brand of fresh

bakery-style cakes and pastries in the United States;Boboli had a 57 percent share of the market for freshpizza crusts; Bestfoods total sweet baked goods sharewas 19.2 percent in 1998.

Glaxose-D energy drinks A newly-acquired business in Pakistan.

Globus dressings, condiments, and liquid sauces A newly-acquired brand in Hungary.

Alsa and Ambrosia ready-to-eat desserts, dessert Marketed primarily in Europe; sales of about $280 mixes, and baking aids million in 1999.

AdeS soy beverages Marketed throughout Latin America.

Captain Cook salt A packaged salt business in India.

Bestfoods (in the United States) and Caterplan Provided food-service packs of company products, (outside the United States) food services specially formulated products, and menu-planning and

other unique services to support restaurants,cafeterias, and institutions in the growing globalmarket for food prepared and consumed away fromhome—geographic coverage in virtually all of thecountries where Bestfoods operated. The food-servicedivision had worldwide sales of $1.4 billion in 1999.

Others: Pfanni potato products (Germany), Pot Noodle instant hot snacks (United Kingdom), Telma soups and instant foods products (Israel), Bovril bouillons, Marmite spread, Santa Rosa jams, Sahara pita breads, Goracy Kubek instant soups (Poland), Delikat seasonings (Central Europe), Molinos de la Plata mayonnaise, ketchup, and mustard (Argentina)





According to a statement issued by Antony Burgmans and Niall FitzGerald, theBestfoods acquisition would give Unilever “a portfolio of powerful worldwide and re-gional brands with strong growth prospects.” Knorr, with $3 billion in annual sales,would become Unilever’s biggest food brand.

To finance the $21.4 billion Bestfoods acquisition, Unilever arranged for a $20 bil-lion line of credit from several banks, with annual interest costs that analysts expectedto exceed $1 billion. It was anticipated that Unilever would ultimately finance thetransaction with longer-term debt securities having a currency profile paralleling thegeographic composition of the business.

In February 2001, Unilever announced the sale of the Bestfoods Baking Companyto George Weston, a Canadian food and supermarkets group, for $1.76 billion in cash.

exhibit 8 Selected Financial Statistics for Bestfoods, 1997–99(in millions of dollars, except for per share amounts)

1999 1998 1997

Selected income statement dataNet sales $8,637 $8,413 $8,438Cost of sales 4,546 4,562 4,693Gross profit 4,091 3,851 3,745

Marketing expenses 996 976 978Selling, general, and administrative expenses 1,765 1,655 1,659Operating income 1,330 1,187 866

Financing costs 183 166 162Income from continuing operations before income taxes 1,147 1,021 704Provision for income taxes 384 352 250Net income $ 717 $640 $ 429

Earnings per share of common stock (diluted) $ 2.48 $ 2.09 $ 1.15

Selected balance sheet dataInventories $ 792 $ 827 $ 818Current assets 2,204 2,405 2,188Plant, property, and equipment 1,964 1,965 1,941Intangible assets, including goodwill associated with acquiring businesses at costs exceeding net assets 1,811 1,854 1,742Total assets 6,232 6,435 6,100Current liabilities 2,368 2,312 2,347Long-term debt 1,842 2,053 1,818Total stockholders’ equity 938 981 1,042

Selected cash flow dataNet cash flows from operating activities $1,110 $ 819 $ 915Capital expenditures 278 304 321Payments for acquired businesses 225 121 298Net cash flows used for investing activities 477 264 732Repayment of long-term debt 153 94 99Dividends paid on common and preferred stock 295 277 256Net cash flows used for financing activities 697 440 267

Source: Company annual reports, 1998 and 1999.





Unilever had announced its intention to divest Bestfoods Baking Company two weeksafter closing its merger with Bestfoods on October 4, 2000, noting that the characteris-tics of the baking business did not fit other Unilever products and that “bakery products”was a category no longer in existence at Unilever. Bestfoods Baking was entirely U.S.-based, with 19 plants across the country, a strong management team, 12,000 employees,and one of the best distribution systems for delivering fresh-baked products directly toretail stores. In 1999, Bestfoods Baking had sales of $1.7 billion (up 2.3 percent over1998) and an operating profit margin of 8 percent (good for the baking business).

exhibit 9 Summary of Bestfoods Worldwide Business Results, 1997–99

1999 Sales and Operations, by Geographic Region

Sales Revenues Fixed Assets Areas of Number of Geographic Region (in millions) (in millions) Operation, 1999 Plants, 1999

Europe, Africa/ 1999 $3,598 1999 $1,568 Operations in 33 countries of 59Middle East 1998 3,490 1998 1,809 Europe, Africa, and Middle East

1997 3,539 1997 1,637North America 1999 $3,594 1999 $1,682 Operations in the U.S. Canada, 36

1998 3,452 1998 1,507 and the Caribbean1997 3,412 1997 1,547

Latin America 1999 $1,071 1999 $ 277 Operations in 16 countries 191998 1,149 1998 2841997 1,105 1997 291

Asia 1999 $ 374 1999 $ 124 Operations in 12 countries, including 181998 322 1998 120 joint ventures in 7 countries1997 382 1997 101

1999 Sales by Product Group

Sales Product Group Region (in millions) % Change Volumes

Knorr soups, sauces, bouillons Europe $2,091 �4.2% �9.8%and related products North America 470 �10.3 10.3

Latin America 342 �9.0 �7.6Asia 185 �17.0 �25.0

Total/average $3,088 �4.1% 6.8%Dressings Europe $464 �2.7% �7.9%

North America 1,001 �4.8 5.4Latin America 443 �5.7 �1.7Asia 96 �14.0 �10.2

Total/average $2,004 �2.2% 5.4%Baking United States $1,697Starches Worldwide $569Bread Spreads Worldwide $406Desserts Worldwide $280All other sales Worldwide $593Bestfoods and Caterplan food services Worldwide $1,400 �8.4% Included in the

(distributed across appropriate several of the product product groups groups above) above





exhibit 10 Market Positions of Selected Bestfoods Products, by Country, 1999

1 Leader in Market Share2 Second in Market Share• Present in the Market

North America, CaribbeanCanada 2 2 1 1 1 • 2 1Dominican Republic 2 2 • • • 1United States • • 2 • • • 1 • 1 • 2 1 • 1

EuropeAustria 1 1 1 1 1 1 • 1Belgium 1 1 1 1 • 1Bulgaria • • • • •Czech Republic 2 2 2 2 • 1 1 •Denmark 1 1 1 1 2 2 1 • 1 •Finland 1 1 1 2 1 • 2France 1 2 2 2 2 • 1 1Germany 2 2 2 2 1 • 1 • 1 •Greece 1 1 1 2 1 1 1 • 2 2Hungary 1 1 1 2 1 2 • •Ireland 1 1 1 1 1 • 1 2 • • 2 1Italy 1 • 2 1 • • • 1Netherlands 2 1 2 2 • • • 2Norway • 2 • • • 1Poland 1 1 1 1 1 2 • •Portugal 1 • 1 2 1 2 • 1 2Romania 1 1 • •Russia 2 1 2 1 • • • •Slovak Republic 2 • • • • 1 •SloveniaSpain 2 • 2 • • • • • 1 2Sweden 1 2 1 1 • 1 • 1 1Switzerland 1 1 1 1 1 • • • 1 •United Kingdom • • 2 • • 1 2 1 • 1 1

Africa/Middle EastEgyptIsrael 1 2 2 1 • • 1 1 • 1 2Jordan 2 2 •Kenya 1 2 • • 2 1Morocco 1 • 1 • 1 1Saudi Arabia 2 2 • • •South Africa 1 2 1 1 • 1 • • 1 •Tunisia 1 • 1 • • 2 •Turkey 1 2 • • 1 •

(continued)

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1 Leader in Market Share2 Second in Market Share• Present in the Market

Latin AmericaArgentina 1 1 1 1 1 1 2 • 1Bolivia • • 2 • 1Brazil 2 1 2 1 1 1 • 1Chile • • 2 1 1 1 • 1 •Colombia • 2 2 2 • 1 • • • 1 1Costa Rica 2 1 • • 1 1 1 • • 1 •Ecuador 2 • • 2 • 1 •El Salvador • • • • • 1 • 1Guatemala • • • • • 1 1 • • 1Honduras • • 1 2Mexico 1 • 1 1 1 2 • 2 • 1 •Panama • • • • • • • 1Paraguay 2 2 2 • 1 2 • 1Peru 2 • 2 2 2 1 2 1 • 1Uruguay 1 1 1 • 1 2 • 1Venezuela 2 • 2 1 • • • 1

AsiaChina • • • • • • • •Hong Kong • • 1 • 2 • • 1 1 1India 1 1 1 1Indonesia 1 • • 2 2 1 • 1Japan 1 • 1 • 2 2 1 • •Malaysia 1 • 2 1 1 1 • 1 1 2Pakistan 1 • 1 • 2 1 • 1 1Philippines 1 • 1 1 1 • • • 1 • 1Singapore 1 1 2 2 • • 1 1 1Sri Lanka 2 1 2 2 •Taiwan 1 1 2 • • • 1Thailand 1 1 1 2 1 1 1 • 1 • •Vietnam 2 1 • •

*Dehydrated products only.

†Bestfoods foodservice (catering) products hold leading share positions in many of the categories in which they compete.

Source: Company annual report, 1999.

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The company’s 2000 annual report characterized Unilever as a “truly multi-local,multinational company dedicated to meeting the everyday needs of people every-where.” Unilever management was generally pleased with first-year results of the

UNILEVER IN 2001





company’s five-year Path to Growth initiative. Management believed its recent acqui-sitions had greatly strengthened the company’s competitive position, giving it a“world-beating brand portfolio and unrivaled geographic coverage” (see Exhibit 11).Management also believed the company had built a solid platform for rapid growth inthe food-service segment.

In 2000 Unilever divested its positions in baked goods, selling its European bak-ing business to a Dutch food products company in July 2000 for €700 million in cashand then, as noted earlier, finding a buyer for the Bestfoods Baking Company severalmonths after completing the Bestfoods acquisition.

In January 2001, Unilever sold its European dry soups and sauces businesses (in-cluding the Batchelors, Oxo, Royco, McDonnell’s, Bla Band, and Heisse Tasse brands)to Campbell Soup for €1 billion; also included in the sale was the Lesieur brand of themayonnaise products sold in France. The brands sold to Campbell’s had combinedsales of €435 million in 2000; EBITDA of €87 million, EBIT of €78 million, assets of€100 million, and about 1,300 employees; overall sales of the products had grown at 1percent annually over the last three years. Unilever’s divestiture of these brands wasundertaken to alleviate market power concerns expressed by the European Commis-sion and gain the commission’s approval of Unilever’s acquisition of Bestfoods.

Exhibits 12 and 13 present Unilever’s most recent financial statements. By year-end 2000, Unilever had refinanced much of the short-term debt used to finance theBestfoods acquisition through various bond issues. Interest costs on the company’sdebt were said to average less than 7 percent and were expected to decline through2001. Exhibits 14 and 15 present comparisons of Unilever’s performance in 2000 ver-sus 1999, by business group and by geographic region of the world.

In the first quarter of 2001, Unilever reported revenue gains of 20 percent over thefirst quarter of 2000 (partly due to the contributions of acquisitions made in 2000), to-tal operating profit gains of 38 percent, and an operating profit margin of 12.4 percent.Global sales growth of the company’s leading brands was 4.3 percent on an annualizedbasis, excluding acquisitions. Unlever’s sales growth performance by geographic re-gion was said to be in line with the Path to Growth strategy:

1st Quarter 2001 Growth due to Sales Growth versus Acquisitions of Leading

Region 1st Quarter 2000 Made in 2000 Unilever Brands

Western Europe 12% 9% 3%North America 31 “Strong” 2Africa, Middle East, Turkey 13 8% 8Asia and Pacific 8 Not reported 9Latin America 7 Not reported 10




exhibit 12 Unilever’s Consolidated Statement of Profit and Loss, 2000 versus 1999

2000 1999 2000 1999 (€ million) (€ million) ($ million) ($ million)

47,582 40,977 Group revenues 43,809 43,65044,637 40,977 Continuing operations 41,098 43,650

2,945 Acquisitions 2,711

(44,280) (36,674) Operating costs (40,769) (39,066)

5,729 4,595 Group operating profit before exceptional items and amortization of goodwill and intangibles 5,274 4,895

(1,992) (269) Exceptional items (1,834) (287)

(435) (23) Amortization of goodwill and intangibles (400) (24)

3,302 4,303 Group operating profit 3,040 4,584

3,363 4,303 Continuing operations 3,096 4,584

(61) Acquisitions (56)

57 42 Add: Share of operating profit of joint ventures 52 45

3,359 4,345 Total operating profit 3,092 4,629

3,408 4,345 Continuing operations 3,137 4,629

(49) Acquisitions (45)

(4) 10 Other income from fixed investments (3) 10

(632) (14) Interest (582) (15)

2,723 4,341 Profit on ordinary activities before taxation 2,507 4,624

(1,403) (1,369) Taxation on profit on ordinary activities (1,292) (1,458)

1,320 2,972 Profit on ordinary activities after taxation 1,215 3,166

(215) (201) Minority interests (198) (214)

1,105 2,771 Net profit 1,017 2,952

675 1,761 Attributable to: NV 621 1,876

430 1,010 PLC 396 1,076

(1,458) (1,265) Dividends (1,343) (1,348)

(44) (20) Preference dividends (41) (22)

(1,414) (1,245) Dividends on ordinary capital (1,302) (1,326)

(353) 1,506 Result for the year retained (326) 1,604

Source: Unilever’s annual review, 2000.


exhibit 11 Market Standing of Core Products and Brands in Unilever’sPortfolio, Year-end 2000

Market Standing at Year-End 2000

North Latin Rest of Product Category America Europe America World Global

Mayonnaise/salad dressings #1 #1 #1 #1 #1Bouillons and hot sauces #1 #1 #1 #2 #1Dry soups #1 #1 #2 #2 #1Ice cream #1 #1 #1 #1 #1Margarines and spreads

(excluding butter) #1 #1 #1 #1 #1Tea (black) #1 #1 #1 #1 #1

Source: Unilever slide presentation posted at <www.unilever.com>, April 2001.





exhibit 13 Unilever’s Consolidated Balance Sheet and Cash Flow Statement, 1999–2000(at December 31)

Balance Sheet at 31 December


37,463 9,606 Fixed assets 34,852 9,65026,467 643 Goodwill and intangible assets 24,622 646

10,996 8,963 Other fixed assets 10,230 9,004

Current assets

5,421 5,124 Stocks 5,043 5,147

7,254 5,742 Debtors due within one year 6,749 5,768

2,563 1,943 Debtors due after more than one year 2,384 1,952

1,666 Acquired business held for resale 1,550

3,273 5,473 Cash and current investments 3,045 5,498

20,177 18,282 18,771 18,365

Creditors due within one year

(16,675) (2,936) Borrowings (15,513) (2,949)

(11,689) (9,198) Trade and other creditors (10,874) (9,241)

(8,187) 6,148 Net current assets (7,616) 6,175

29,276 15,754 Total assets less current liabilities 27,236 15,825

Creditors due after more than one year13,066 1,853 Borrowings 12,155 1,862

1,019 979 Trade and other creditors 948 982

6,404 4,582 Provisions for liabilities and charges 5,958 4,603

618 579 Minority interests 575 581

8,169 7,761 Capital and reserves 7,600 7,797

6,300 6,122 Attributable to: NV 5,861 6,150

1,869 1,639 PLC 1,739 1,647

29,276 15,754 Total capital employed 27,236 15,825

Cash Flow Statement for the Year Ended 31 December


6,738* 5,654 Cash flow from operating activities 6,203 6,02338 28 Dividends from joint ventures 35 29

(798) (156) Returns on investments and servicing of finance (735) (167)(1,734) (1,443) Taxation (1,596) (1,538)(1,061) (1,501) Capital expenditure and financial investment (977) (1,599)

(27,373) (362) Acquisitions and disposals (24,142) (388)(1,365) (1,266) Dividends paid on ordinary share capital (1,257) (1,348)

(6,093) Special dividend (6,491)

(25,555) (5,139) Cash flow before management of liquid (22,469) (5,479)resources and financing

2,464 5,675 Management of liquid resources 2,268 6,04722,902 (146) Financing 21,085 (156)

(189) 390 Increase/(decrease) in cash in the period 884 412

(27,152) (5,094) (Decrease)/increase in net funds in the period (25,310) (6,101)

*Includes payments of €550 million to settle share options and similar obligations in Bestfoods consequent to the change of control.

Source: Unilever’s annual review, 2000.




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