Ben & Jerry’s uphill battle against Unilever

This is an audio transcription of the FT press briefing podcast episode: Ben & Jerry’s uphill battle against Unilever

Marc Filipino
Hello from the Financial Times. Today is Friday, August 12, and it’s your FT News Briefing.

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US lawmakers are poised to give Joe Biden a legislative victory today. The European corporate bond market is in turmoil. And speaking of cold, things have gotten icy between a famous ice cream maker and its parent company.

Judith Evans
And there was an almost total breakdown in relations between Unilever and the Ben and Jerry’s board.

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

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Today, US House of Representatives lawmakers are expected to approve a $700 billion package focused on climate, health care and taxes. It would be a major victory for President Joe Biden and his Democratic Party. The bill is called the Cut Inflation Act and would increase funding for clean energy. In addition, it would allow the government to negotiate the price of certain drugs. It would also establish new taxes for corporations and increase funding to strengthen tax enforcement.

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We are in August and the Europeans are on summer vacation. Americans are also taking summer vacations, which means deals with companies on both sides of the Atlantic are slow. But this summer, it’s slower than usual. To explain why, I’m joined by the FT’s Markets Editor, Katie Martin. She joins us almost every Friday. Hi Katie.

Katie Martin
Hey, how are you?

Marc Filipino
I’m doing well. Katie, let’s start with the slowdown in Europe. Corporate bonds virtually slowed to a halt. Why do we see this?

Katie Martin
So we see in Europe what we see pretty much everywhere else, which is the flow of new offerings coming into the market. By that I mean corporate bonds, that is, companies that come into the bond market and borrow money. It’s just stopped. Today, August is still a dead zone for deals hitting the market, as Europeans like to go on vacation. (laugh)

Marc Filipino
For a whole month in fact, I think.

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

Marc Filipino
It’s slow.

Katie Martin
They don’t do anything, do they? So you look at the year so far and in European debt capital markets – that is, companies that raise bonds in the market, issue bonds – volumes are down 26 % business, government, volumes are down about 40% so far this year compared to the same period last year. So there are simply no offers there. And I really don’t know in what market, you know, bankers who do this stuff for a living, what they do.

Marc Filipino
Yes. There is no idea why this is happening?

Katie Martin
Well, no, there is a very strong sense of why this is happening, which is that the European economy is in a real mess and has every chance of getting a whole lot worse . Europe is staring at the barrel not knowing where it will get its gasoline for the winter. Plus, borrowing costs are simply much higher than before because benchmark interest rates have risen a lot, driving up borrowing costs for everyone. There’s a bit of padding here in the sense that corporations around the world absolutely feasted on free money in 2020 when central banks around the world cut rates to nothing because they were trying to save the system financial disaster. So that means companies, many of them, actually have pretty healthy balance sheets. They don’t necessarily need the money right now. But even taking that into account, there just aren’t any deals there.

Marc Filipino
Okay, Katie, so it’s in Europe. What about the United States? The FT reported a slowdown in US new initial public offerings.

Katie Martin
Yeah absolutely. And it’s not so much a slowdown in U.S. IPOs. It’s just an IPO stop. Now, what we call equity capital market bankers, ECM bankers, people who take companies to the stock market for the first time, are just infallibly positive people. Even if it’s all terrible they’ll look you in the eye and they’ll tell you but there’s a pipeline of new business and it’s ready to happen and it’s really big business and it’s going to happen any moment now. ‘other. They say, yes, it’s a very long stop and we don’t know how long it’s going to be. And unless we get some really good big name deals that play out fantastically over the next two months, we’re looking at potentially nothing happening until next year. It’s really unusual to hear ECM bankers being so pessimistic.

Marc Filipino
Who is most affected by these slowdowns in IPOs and these slowdowns in corporate bonds?

Katie Martin
Well, in the immediate line of sight I would say you have the bankers who are doing these transactions for a living. There are some, you know, if this dry spell is going to set in for the long haul, it’s hard to see how these parts of the banks can continue to produce business and keep people busy. But certainly, you know, in the real world, if you will, companies are going to find it much more difficult when they come back to borrow. Everyone expects much higher default rates. You know, there’s going to be a lot of businesses out there that won’t be able to keep paying down the debt. So it’s a much tougher environment for companies to get their hands on the cash they need. And we will get this, the test of this theory, that everything will be fine, companies have borrowed a lot of money during the pandemic. They have you know, they stuffed their nests. They could, they can see that. Let’s test this theory, shall we? Because I think we should.

Marc Filipino
Katie Martin is the FT’s Markets Editor. She joins us every Friday, not next Friday, because she will be on vacation.

Katie Martin
Or the Friday after.

Marc Filipino
Or the Friday after. Good . . .

Katie Martin
I will always be on vacation.

Marc Filipino
I will miss you, Katie. Thank you for your time.

Katie Martin
OKAY. Carefree.

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Marc Filipino
The American ice cream parlor Ben & Jerry’s is in conflict with its parent company, the British multinational Unilever. Since its inception decades ago, Ben & Jerry’s has focused on environmental and social issues as much as profits. So, in keeping with its progressive policy, Ben & Jerry’s announced last year that it would end its ice cream sales in the West Bank and East Jerusalem. But there was a big problem.

Judith Evans
Unilever, the parent company, did not support the move.

Marc Filipino
This is the FT’s consumer industries correspondent, Judith Evans.

Judith Evans
But Ben & Jerry’s had the freedom to do so under a highly 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 of directors, which has the right to make certain decisions, including with respect to brand type and brand values. The Israeli government immediately intervened and threatened serious consequences for Unilever. Many Unilever investors, especially in the United States, were really unhappy with this decision.

Marc Filipino
A major investor who opposed Ben & Jerry’s decision is the powerful financier Nelson Peltz.

Judith Evans
And Peltz, in fact, since then we at the FT have revealed that he has a stake in Unilever and has joined the Unilever board. So there is a lot of pressure very close to home, as well as political pressure from the Israeli government, not to go ahead.

Marc Filipino
Here is what Unilever is doing. He decides to sell his business in Israel to the local distributor and manufacturer, a guy named Avi Singer. So Ben & Jerry’s is going to court.

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

Marc Filipino
Now, as we record 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 argument. While Ben & Jerry’s is renowned for being politically progressive, Unilever also positions itself as moralistic.

Judith Evans
And Alan Jope, the current chief executive, said he wants all of his brands to have a purpose, which doesn’t have to be environmental, but it has to be a little bit bigger than just selling soap or whatever. But what’s kind of ironic about this is that Ben & Jerry’s has always been very political and it’s also very successful. It last year became one of 13 Unilever brands to exceed 1 billion euros in annual sales. There’s an interesting tension between a larger company and a single brand, both of which are very heavy on the kinds of things we do.

Marc Filipino
So if Unilever is trying to crush this kind of corporate political movement, is Ben & Jerry’s really a good fit for Unilever?

Judith Evans
Well, that’s a really interesting question. And there has been at this stage an almost total breakdown of relations between Unilever and the board of directors of Ben and Jerry’s, most of whose members are appointed independently under this very unusual acquisition agreement which they have. Unilever even stopped paying independent board members, they said, and Alan Jope, Unilever’s chief executive, I believe wondered if he was planning to sell Ben & Jerry’s. He says no. But it seems that we have here two different kinds of ideas of purpose and morality, which have absolutely come into conflict with each other. It’s hard to see how you come back from this.

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

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You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back next week for the latest trading 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.

This transcript was generated automatically. If by any chance there is an error, please send the details for a correction to: [email protected]. We will do our best to make the change as soon as possible.

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