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Nick Train buys more ‘rare and valuable’ Unilever

Star manager of Lindsell Train and Finsbury Growth & Income investment trusts says attempted Kraft bid for Unilever should be a ‘wake-up’ call to investors.

 
Nick Train buys more  ‘rare and valuable’ Unilever

Fund manager Nick Train has bought more shares in Unilever (ULVR) following its rejection of a takeover approach as he believes the market underestimates how big the consumer goods company can get.

The manager of the Lindsell Train (LTI ) investment trust has a bias towards consumer staples and Unilever now makes up 7% of the portfolio, the third largest position held. He also holds the shares in Finsbury Growth & Income (FGT ) where Unilever is the largest position, making up 10.1% of the portfolio.

Unilever saw off the $143 billion (£115 billion) bid approach from US-based Kraft Heinz (KHC.O) and its private equity partner 3G last month. The company, which owns brands such as Domestos, Dove and Ben & Jerry’s, did not come out of the bid unscathed and announced a strategic review to ‘accelerate delivery of value for the benefit of our shareholders’.

Train said he was ‘intrigued’ by the deal and had bought more shares in the company but warned the review needed to take a long-term view on value building too.

‘We have bought more Unilever since the deal fell through,’ he said.

‘The board’s response to the approach, of immediately promising a review to release more value more quickly for holders, is intriguing. We can see how short-term value could be created but we can also see how long-term value could be lost if Unilever feels compelled to cut back on brand building or to hamstring its balance sheet by taking on a lot of debt.’

Lindsell Train, which has a market value of £153 million, currently trades at a 32% premium, with a share price of 777p and a net asset value of 587p.

The attempted takeover by Kraft not only has implications for the direction of Unilever but for large corporations and their investors, Train said in his monthly update for Lindsell Train. He believed the bid begged the question: ‘is any company too big to be bought?’

Investors have been attracted to large companies like Unilever for income, using them as bond proxies in a low interest-rate environment. However, the definition of ‘large’ may now be shifting.

Train said the size of the Kraft bid was ‘a wake-up call for corporations all over the world – and their investors’.

Although 2015 and 2016 represented the biggest years for merger and acquisition (M&A) activity, ‘even I would not have regarded Unilever as a likely merger or takeover candidate’, said Train.

‘Not just because of its…more than satisfactory business record, but because the ticket – well over £100 billion – seemed implausibly high, even in an era of low interest rates,’ he said.

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