Ben & Jerry’s bitter battle with Unilever

This is an audio transcript of the FT News Briefing podcast episode: Ben & Jerry’s bitter battle with Unilever

Marc Filippino
Good morning from the Financial Times. Today is Friday, August 12th, and this is your FT News Briefing.

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US lawmakers are set to hand Joe Biden a legislative victory today. Europe’s corporate bond market is in a chill. And speaking of cold, things have gotten frosty between a famous ice cream maker and its corporate parent.

Judith Evans
And there has been an almost total breakdown of relations between Unilever and the board of Ben and Jerry’s.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Today, US lawmakers in the House of Representatives are set to approve a $700bn package focused on the climate, healthcare and taxes. It would be a major victory for President Joe Biden and his Democratic party. The bill is called the Inflation Reduction Act, and it would boost funding for clean energy. Plus, it would allow the government to negotiate the price of certain drugs. It would also establish new taxes for corporations and increase funding to beef up tax enforcement.

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It’s August and Europeans are on long summer holidays. Americans are squeaking out some summer vacation, too, which means corporate dealmaking on both sides of the Atlantic is slow. But this summer, it’s slower than usual. To talk about why, I’m joined by the FT’s markets editor, Katie Martin. She joins us pretty much every Friday. Hey, Katie.

Katie Martin
Hey, how you going?

Marc Filippino
I’m doing all right. Katie, let’s start with the slowdown in Europe. Corporate bonds have pretty much slowed to a stop. Why are we seeing that?

Katie Martin
So we’re seeing in Europe what we’re seeing pretty much everywhere else, which is just that the flow of new deals coming to market. By this I mean corporate bonds, so companies coming to the bond market and borrowing money. It’s just ground to a halt. Now, August is always a dead zone for deals coming to market because Europeans like going on holiday. (laughter)

Marc Filippino
For a whole month in fact, I’m finding.

Katie Martin
(laughter) But anyway, yeah, so August is always, it’s always a dead zone. But even by the standards of the European August (laughter) markets . . . 

Marc Filippino
It’s slow.

Katie Martin
They’re just doing nothing, right? So you look at the year so far and in European debt capital markets — that’s companies raising bonds in the market, issuing bonds — volumes are down 26 per cent from companies, from governments volumes are down about 40 per cent so far this year compared to the same period last year. So there just are no deals out there. And I genuinely don’t know what market, you know, the bankers who do this stuff for a living, what they’re doing.

Marc Filippino
Yes. There’s no sense of why this is happening?

Katie Martin
Well, no, there’s a very strong sense of why this is happening, which is the European economy is in a right mess and it’s got every possibility of getting an awful lot worse. Europe is staring down the barrel of not knowing where it’s gonna get its gas from for the winter. In addition, borrowing costs are just much higher than they used to be because benchmark interest rates have risen quite a lot, and that pushes up borrowing costs for everybody. There’s a bit of padding here in the sense that companies globally, absolutely feasted on free money in 2020, when central banks everywhere cut rates to nothing because they were trying to save the financial system from disaster. So that means that companies, a lot of them, do have actually pretty healthy balance sheets. They don’t necessarily need money right now. But even accounting for that, there are just no deals out there.

Marc Filippino
OK, Katie, so this is in Europe. What about in the US? The FT has been reporting on a slowdown in the US of new initial public offerings.

Katie Martin
Yeah, definitely. And it’s not so much an IPO slowdown in the US. It’s just an IPO shutdown. Now, what we call equity capital markets bankers, ECM bankers, the people that bring companies to the stock market for the first time, are just unfailingly positive people. Even if everything is terrible, they will look you in the eye and they will say, but there’s a pipeline of new deals and it’s ready to come and they’re really great companies and they’re gonna come any time now. They’re saying, yeah, this is a really long shutdown and we don’t know how long it’s going to last. And unless we get some really good marquee deals that just go fantastically in the next couple of months, we are potentially looking at nothing happening until next year. It’s really unusual to, to hear ECM bankers being so kind of downbeat.

Marc Filippino
Who is affected most by these IPO slowdowns and these corporate bond slowdowns?

Katie Martin
Well, in the immediate line of fire, I would say you have the bankers that do these deals for a living. There’s some you know, if this dry period is going to settle in for the long haul then it’s difficult to see how these portions of banks can keep churning out the deals and can keep people busy. But certainly for, you know, in the real world, if you like, companies are just gonna find the going much harder when they come back to borrow. Everyone’s expecting much higher default rates. You know, there’s gonna be lots of companies out there that, that aren’t able to keep up repayments on the debt. So it’s just a much trickier environment for companies to get their hands on the money they need. And we will get that, the test of this theory, that it’s gonna be fine, companies borrowed loads of money in the pandemic. They’ve you know, they’ve padded out their nests. They could, they can see this out. Let’s test that theory, shall we? Because I think we might have to.

Marc Filippino
Katie Martin is the FT’s markets editor. She joins us every Friday, not next Friday, because she’s gonna be on vacation.

Katie Martin
Or the Friday after that.

Marc Filippino
Or the Friday after that. Well . . . 

Katie Martin
Still going to be on vacation.

Marc Filippino
Gonna miss you, Katie. Thank you for your time.

Katie Martin
OK. No worries.

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Marc Filippino
The American ice cream maker Ben & Jerry’s is in a heated dispute with its corporate parent, the British multinational Unilever. Ben & Jerry’s has, since its founding decades ago, focused on environment and social issues as much as profits. So in keeping with its progressive politics, Ben & Jerry’s last year announced that it would end its ice cream sales in the West Bank and East Jerusalem. But there was one big problem.

Judith Evans
Unilever, the parent company, didn’t support this move.

Marc Filippino
That’s the FT’s consumer industries correspondent, Judith Evans.

Judith Evans
But Ben & Jerry’s had the freedom to do this under a very unusual acquisition agreement that dates back to when Unilever bought the company more than 20 years ago. Ben & Jerry’s has its own independent board, which has the right to make certain decisions, particularly around kind of the brand and brand values. The Israeli government immediately weighed in and threatened serious consequences for Unilever. Lots of Unilever’s own investors, particularly in the US, were really unhappy about this decision.

Marc Filippino
One big investor who opposed Ben & Jerry’s move is the powerful financier Nelson Peltz.

Judith Evans
And Peltz, actually, since then, we in the FT revealed that he owns a stake in Unilever and he’s joined Unilever’s board. So there’s a tremendous amount of pressure from very close to home, as well as political pressure from the Israeli government, not to allow this to go ahead.

Marc Filippino
So here’s what Unilever does. It decides to sell its Israel business to the local distributor and manufacturer, a guy named Avi Singer. So then Ben & Jerry’s goes to court.

Judith Evans
The current state of play is that Ben & Jerry’s wants an injunction to stop the sale of its Israeli operation to go ahead. Slightly weirdly, Unilever claims that it has been completed. Therefore, it’s impossible to issue such an injunction. But the judge is considering whether to do that as a preamble to the rest of the case.

Marc Filippino
Now, as we’re recording this, there’s still no court ruling on whether Ben & Jerry’s will get an injunction. But Judith points out something really interesting about this whole dispute. While Ben & Jerry’s is famous for being politically progressive, Unilever also positions itself as moral.

Judith Evans
And Alan Jope, the current chief executive, has said that he wants all of its brands to have a purpose, which doesn’t necessarily have to be environmental, but it needs to be kind of bigger than just like selling soap or whatever. But what’s quite ironic about this is is Ben & Jerry’s has always been very political and it also is very successful. It became last year one of I think only 13 Unilever brands to exceed €1bn of annual sales. There’s an interesting tension there between a wider company and a single brand, both of which are really quite heavy on the kind of we’re doing the right thing.

Marc Filippino
So if Unilever is gonna try and squash this kind of political movement by the company, is Ben & Jerry’s actually a good fit for Unilever?

Judith Evans
Well, that’s a really interesting question. And there has at this point been an almost total breakdown of relations between Unilever and the board of Ben and Jerry’s, most of whose members are independently appointed under this very unusual acquisition agreement that they have. Unilever has even stopped paying the independent board members, they’ve said, and Alan Jope, the chief executive of Unilever, has, I think, been asked whether he plans to sell Ben & Jerry’s. He says that he doesn’t. But it does seem like we have two sort of different ideas of purpose and morality here, which have absolutely come into conflict with one another. It’s hard to see how you go back from that.

Marc Filippino
Judith Evans is the FT’s consumer industries reporter.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Michael Lello, David da Silva, India Ross and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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