25 Nov

Two of the three final bidders for Unilever’s tea division refused to take over the company’s plantations over concerns about business conditions, according to people familiar with the matter. The tea division, which includes PG Tips and Lipton brands, was sold this week to CVC Capital Partners for €4.5 billion. But the Luxembourg-based takeover group was left as the only bidder willing to buy the entire division after Carlyle and Advent International decided they could not take over tea plantations in East Africa, which face tough questions about human rights and fair wages. Their decision underscores the growing sensitivity of investors, even in the traditionally hawkish private equity industry, to assets that have significant environmental, social or governance risks. Two people familiar with the matter said Advent International excluded tea plantations from its final bid, while Carlisle withdrew completely just days before this week’s bid deadline. One person familiar with the matter said Advent has grown increasingly concerned about accepting responsibility for the health, welfare and security of thousands of farm workers. Chiefs on plantations have power not only over workers’ jobs but also over their housing and medical care, since locations are often in remote areas and depend on workers brought in from elsewhere. The takeover group was particularly concerned about the potential for violence to erupt on Kenya’s Kericho farm after the country’s general elections scheduled for August next year. Seven people were killed, 56 women were raped, and many were injured in an attack on the farm following the disputed elections in 2007, according to a complaint submitted by 218 Kenyans to two UN bodies last year. One person familiar with the situation added a report on the farms, produced for Advent, “wasn’t well read.” This led the buying group to exclude farms from its bid, bidding instead for brands. Kenya’s Unilever is reviewing allegations that it failed to adequately assist workers affected by an attack on Kericho farm amid ethnic violence in 2007. It has recently come into conflict with Kenyan workers as it automates picking, which has led to job cuts. The Kenyan farm has also been the scene of sexual harassment of female workers by some managers. Unilever responded with measures that include more female leaders, training, and an ethics hotline. Wages in the tea industry are low. PG Tips, a brand of Unilever, says it pays workers in Kericho nearly two and a half times the legal minimum agricultural income in Kenya. That amount was raised to just over £53 a month in 2018. Francis Atuli, general secretary of the Central Organization of Trade Unions in Kenya, said there were still pending claims for workers’ compensation, which could mean “a potential buyer will face a lot of problems”. Unilever said about 8,500 people are employed permanently on Unilever’s farms in Kenya, Tanzania and Rwanda, and that percentage rises to about 16,000 when temporary workers are added in the peak season. A person familiar with their thinking said Carlisle withdrew from the long-running auction due to concerns about “environmental, social and institutional governance considerations,” in relation to concerns about farm conditions. Another person added that Blackstone decided early on not to bid on the tea division, in part due to concerns about the treatment of workers. They described it as a “huge ESG issue”, CVC arranged for ESG specialists to visit the farms as part of the due diligence process, and determined Unilever was a good agent for business, a person familiar with the matter said. CVC declined to comment. The person said the dealmakers were also relieved by Unilever’s reputation for being proactive on ESG issues and from the company’s membership in the Ethical Tea Partnership, which aims to make the tea industry more environmentally fair and sustainable. Unilever says it has several programs to address the “social challenges” of tea. “Working conditions fully comply with the company’s global health and safety standards that exceed local requirements, meet living wage commitments, and provide significant additional benefits such as housing, free healthcare, nurseries and primary education,” she said. Growth faltered in Unilever’s tea division, now renamed Ikatera, which has an annual turnover of €2 billion. While some buyers were put off by the farmer, many were drawn to the idea of snapping up what they saw as a low-priority unit within a conglomerate that could be revitalized with new investments in marketing and advertising. Unilever said the price CVC agreed to buy the division was 14 times historical reported earnings before interest, tax, depreciation and amortization, “a significant premium over valuations of comparable companies . . . that demonstrates both the quality of the business and the strength of the sale.” Source: World Weekly