Divestiture of Non-Core Assets Smokescreen
Unilever is a company that I have been aware of since a small child. The soap to foods giant started in Port Sunlight near to where my parents now live. The legacy of the original Lever Brothers enterprise can be seen in the quality of the art collection at the Lady Lever art gallery and the listed village of Port Sunlight. The business dictated much of the local area from the former margarine plant, related food factories, the former candle works and docks for the barges bringing in palm oil, chemicals and tallow.
The sirens signalling a change of shift at the factory used to punctuate the day for me as a youngster. Sunday mornings used to have brown smoke emerging from the factory chimneys as they cleaned the boilers. During foggy days or when the wind blew in the right direction the air used to smell: sour from the cooking fat, sweet from the perfumes of soaps and washing powders or the baked goods. Our house used to have unmarked washing powder boxes stored on top of the wardrobe in my bedroom as local housewives to the Lever Brothers factory would try out the company's new formulations on their own clothing and report the results in return for free washing powder.
Viscount Leverhulme, a direct decendant of the founder William Hesketh Lever died a number of years ago, his property was auctioned off and his house is now a venue for weddings and parties.
The business to which the Lever family leant their name has also has been having a sale, slowly dismantling the business following the 'post-conglomerate' fad of focusing on core competences. Unilever Cosmetics International has been sold to American group Coty. The move to sell this particular 'non-core' asset was a surprising one for me. Perfumes and cosmetics struck me as being a potential goldmine as the size of the market in emerging countries like China, India and Brazil continue to expand. Perfumes are an easily obtainable luxury good. What's more the profit margin they afford is much bigger than many of Unilever's other products.
The two most expensive parts of a fragrance are the packaging and promotion, the product itself costs pennies - allowing extremely fat profit margins. In addition, the development of fragrances and cosmetics is complementary to the development and research of other personal hygiene products. I am not inclined to believe that Unilever are letting the business go because they do not believe in the fragrances and cosmetics marketplace is a non-core item.
They may argue that in an aging western society these products are not important, I would argue the opposite, older people do not see themselves as old. They buy Rolling Stones tickets, go travelling, find new loves (and divorce existing partners).
I would not be surprised if Unilever reentered the market at a later date unemcumbered by long term contracts with the likes of Cerutti and Calvin Klein. Otherwise I cannot understand how the deal would represent good shareholder value?
Unilever is a company that I have been aware of since a small child. The soap to foods giant started in Port Sunlight near to where my parents now live. The legacy of the original Lever Brothers enterprise can be seen in the quality of the art collection at the Lady Lever art gallery and the listed village of Port Sunlight. The business dictated much of the local area from the former margarine plant, related food factories, the former candle works and docks for the barges bringing in palm oil, chemicals and tallow.
The sirens signalling a change of shift at the factory used to punctuate the day for me as a youngster. Sunday mornings used to have brown smoke emerging from the factory chimneys as they cleaned the boilers. During foggy days or when the wind blew in the right direction the air used to smell: sour from the cooking fat, sweet from the perfumes of soaps and washing powders or the baked goods. Our house used to have unmarked washing powder boxes stored on top of the wardrobe in my bedroom as local housewives to the Lever Brothers factory would try out the company's new formulations on their own clothing and report the results in return for free washing powder.
Viscount Leverhulme, a direct decendant of the founder William Hesketh Lever died a number of years ago, his property was auctioned off and his house is now a venue for weddings and parties.
The business to which the Lever family leant their name has also has been having a sale, slowly dismantling the business following the 'post-conglomerate' fad of focusing on core competences. Unilever Cosmetics International has been sold to American group Coty. The move to sell this particular 'non-core' asset was a surprising one for me. Perfumes and cosmetics struck me as being a potential goldmine as the size of the market in emerging countries like China, India and Brazil continue to expand. Perfumes are an easily obtainable luxury good. What's more the profit margin they afford is much bigger than many of Unilever's other products.
The two most expensive parts of a fragrance are the packaging and promotion, the product itself costs pennies - allowing extremely fat profit margins. In addition, the development of fragrances and cosmetics is complementary to the development and research of other personal hygiene products. I am not inclined to believe that Unilever are letting the business go because they do not believe in the fragrances and cosmetics marketplace is a non-core item.
They may argue that in an aging western society these products are not important, I would argue the opposite, older people do not see themselves as old. They buy Rolling Stones tickets, go travelling, find new loves (and divorce existing partners).
I would not be surprised if Unilever reentered the market at a later date unemcumbered by long term contracts with the likes of Cerutti and Calvin Klein. Otherwise I cannot understand how the deal would represent good shareholder value?
