FE fundinfo Alpha Manager Nick Train has defended Unilever’s failed bid GlaxoSmithKline’s (GSK) consumer healthcare business weeks after rival manager Terry Smith criticised the move.
The £50bn bid fell apart after the pharma giant rejected three bids on the basis that Unilever “fundamentally undervalued” the company and its future prospects.
But Train backed Unilever’s takeover attempt, saying it was “rational” that Unilever would try and combine with a business it already shares a lot similarities with.
At his annual general meeting (AGM) for the Finsbury & Growth Income Trust, in which Unilever is a top 10 holding, Train said: “We would have been a lot more disappointed with the company if they had not contemplated making that acquisition.
“Whether it was practical at this juncture for Unilever to acquire that asset, that's a different matter,” he said, acknowledging that this had not been the best timing on Unilever’s part.
If the bid had been made two years earlier Train said, “I suspect that investors would have applauded it to the rafters”.
This has not been the case, however, as the move was viewed as opportunist in the wake of a Covid slump that hit share prices, rather than being competitively rationale.
“The bid has been held in derision and I think it’s a bit unfair frankly,” Train said.
The Unilever management team acknowledged its errors regarding the bids today in its 2021 results, announcing a further €3bn (£2.5bn) buyback programme for 2022-2023 and reassuring investors that it would not be pursuing any major acquisitions in the foreseeable future.
On the stock’s long-term value Train said that Unilever was not the most exciting company in the world “or even in the UK”, but it owned “a wonderful collection of brands” , including the likes of Hellmann’s, Knorr, Dove and Ben and Jerry’s which “will generate cash for the foreseeable future”.
“And I promise people in the years when the world is considerably tougher, you will be grateful that part of your portfolio is invested in a business with Unilever's characteristics,” Train said.
These comments come after several fund managers criticised the bid, including Smith, who gave the FTSE 100 constituent a very public dressing down over the attempt.
Smith slammed Unilever for becoming obsessed with the outward, public appearance of sustainability credentials at the expense of the business itself in his annual letter to shareholders earlier this year. He was equally critical of the GSK bid.
Smith, who still holds Unilever in his £26bn Fundsmith Equity portfolio, wrote a ‘post mortem’ on the episode, calling it a “near death experience”, and noting that “Unilever’s attempt to purchase the GSK Consumer business is now thankfully dead, rather than the value of our investment in Unilever”.
Both managers continue to hold the UK large-cap, which reported positive sales growth last year, but shares were down over the year as investors worried about its ability to continue to pass on higher inflation to customers. It was one of a number of negative contributors in Train's trust, with the Alpha Manager acknowledging that the portfolio had a poor year in 2021. "It was not a vintage year for the trust," he said at the AGM.
The Finsbury Growth & Income portfolio underperformed its FTSE All Share benchmark in 2021 and the wider IT UK Equity Income sector, with total returns of just 6.9%. Shares in the trust also slipped down to a discount to its net asset value of 4.4%, triggering the board’s policy of buying back shares when it starts approaching a 5% discount.
Performance of the trust vs sector and benchmark in 2021
Source: FE Analytics
This run of poor returns has also hit his open-ended portfolios, something he has openly voiced his disappointment on.
The shift in performance was caused by the wider market rotation into value, a style which does not benefit Train’s growth approach. But long-term Train’s buy-and-hold approach has rewarded investors with significant outperformance.