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Business – Unilever CEO Taps P&G Playbook as Sara Lee Heralds Acquisitions

Jeroen Molenaar and Thomas Mulier

Sept. 28 (Bloomberg) — Unilever’s Paul Polman, who helped build Nestle SA and Procter & Gamble Co. with acquisitions, is taking a page from his old playbooks in his new job.

The first outsider to become Unilever’s chief executive officer, Polman broke a nine-year streak of avoiding major takeovers to pursue the 1.28 billion-euro ($1.88 billion) purchase of Sara Lee Corp.’s shower-gel and European detergents business last week. The move may herald a turn to dealmaking for Unilever, the maker of Dove soap and Hellmann’s mayonnaise.

Polman, a 53-year-old Dutch marathon runner who took the helm in January, is picking up the pace after sales growth at Unilever trailed P&G and Nestle for years. Analysts said the Sara Lee deal may be followed by more brand buyouts. At P&G, he helped plan to integrate the 2005 purchase of Gillette Co., and at Nestle he worked on the acquisition of Gerber baby foods.

“Polman has increased the sense of urgency,” said Tom Russo, a partner at Gardner Russo & Gardner who met Polman when he was at Nestle, one of Gardner’s two largest investments. “He must be feeling somewhat comfortable with what he’s done so far because now he’s about to add complexity. He can say, ‘Trust me, I know it works, because I’ve seen it work twice now.’”

The Sara Lee unit purchase gives the London- and Rotterdam- based company shower gel, hand-soap and deodorant brands such as Duschdas, Radox and Sanex. The deal is Unilever’s biggest since 2000, when it bought SlimFast Foods Co., Ben & Jerry’s Homemade Inc. and Bestfoods.

Polman, who said in June that Unilever had “wonderful opportunities” for M&A, was unavailable to comment, according to spokesman Tim Johns.

‘Acquisition Mode’

Polman, who studied to become a priest before switching to economics, has been preaching growth by linking manager bonuses to boosting sales by volume. He argues the company needs to take market share through discounts as the recession drives consumers away from pricy products, and is trying to balance that with improving profitability. Unilever has risen 12 percent since June 30 in Amsterdam trading.

The Sara Lee deal was preceded by more than $400 million in acquisitions since Polman took over, including TIGI hair care in the U.S. and Baltimor ketchup in Russia. Unilever is now in “acquisition mode,” said Robert Jan Vos, an analyst at Fortis Bank Nederland.

Before Polman, Unilever spent years scrapping assets after the $24 billion Bestfoods purchase. Predecessor Patrick Cescau led more than 19 divestments, including Birds Eye frozen foods and All detergents, after a five-year program to lift sales growth by shedding 1,200 brands failed. The company wrote down the value of SlimFast as shoppers shunned the pricy ready-to-eat shakes in favor of low-carb diets.

Inherited Assumptions

Polman said in May that as a result of that era, there was an “inherited assumption that the company will not grow,” and according to ING analyst Marco Gulpers, Polman has criticized some of the disposals in meetings.

“With only premium brands, you lose the battle for the shelves,” Gulpers said. “What he is re-introducing is the focus on categories, not brands.”

He’s relying on his experience at P&G and Nestle for that, Gulpers said. He said Unilever could spend up to 2.5 billion euros on acquisitions in 2010, adding 5 billion euros in sales.

Polman’s not the only one seeking deals. Kraft Foods Inc. made an unsolicited bid for chocolate maker Cadbury Plc this month worth 10 billion pounds ($16 billion). As stock markets rebound and credit markets thaw, European takeovers are picking up after the slowest August in five years.

“There’s going to be a lot of M&A activity in the coming year, and I expect him to go after that,” said Martin Schulz, director of international equity investments at Allegiant Asset Management in Cleveland.

P&G Playbook

Born in Enschede, near the Dutch-German border, Polman knows how to fill out a lineup from 25 years spent at P&G.

When he ran the Western European unit, Cincinnati-based P&G bought Clairol hair tints for $4.95 billion in 2001 and Germany’s Wella AG hair care for $7.6 billion in 2003, adding to its existing shampoos like Pantene. When P&G bought Gillette for $57 billion, the deal brought masculine products like razors to its feminine goods under the Olay, Always and Tampax brands.

At Vevey, Switzerland-based Nestle, where Polman spent two years as finance chief, the $5.5 billion Gerber purchase complemented its Neslac baby formula.

The Sara Lee brands like Sanex shower gel fill Unilever gaps, adding mid-priced products and fitting Polman’s strategy to play the entire price spectrum, said Fernand de Boer, an analyst at Petercam in Amsterdam. A 500-milliliter bottle of Sanex sold for 3.69 euros at an Etos drug store in Amsterdam last week, compared with 4.69 euros for Dove.

Running Harder

It’s a similar strategy to P&G, which sells different product lines and different price points.

“P&G executives are cut from very similar molds,” said Matt McCormick, a portfolio manager with Bahl & Gaynor Inc., which manages $2.3 billion in Cincinnati. “You can essentially take them out of the P&G playbook and insert them into your own and you’re usually going to be quite pleased.”

Polman rises at 6 a.m. to hit the treadmill in his London office. He completed this year’s Unilever-sponsored London Marathon in just over 4 hours and 12 minutes.

Unilever is starting to turn. The company unexpectedly posted volume growth in western Europe in the second quarter. Among Polman’s fix-it initiatives for existing products, he gave margarine managers 30 days to devise a plan to restore growth in Germany. They made Homa Gold a discount brand with new packaging, and sales improved.

Unilever sales may rise to 42.2 billion euros next year from an estimated 40.7 billion euros this year, according to the average of analyst projections compiled by Bloomberg. The company had 1.9 billion euros in cash and equivalents at the end of June.

As ING’s Gulpers said, “These guys look at everything. And he’s got the fire power.’’

To contact the reporter on this story: Jeroen Molenaar in Amsterdam jmolenaar1@bloomberg.net; Thomas Mulier in Geneva at tmulier@bloomberg.net.

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September 28, 2009 - Posted by | Uncategorized |

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