Bidders at Unilever’s tea business withdrew due to plantation concerns

Two of the three final bidders for Unilever’s tea department refused to take on the company’s plantations because of concerns about working conditions, according to people familiar with the matter.

The tea division, which includes the brands PG Tips and Lipton, was sold this week to CVC Capital Partners for € 4.5 billion.

But the Luxembourg acquisition group remained the only bidder willing to buy the entire division after Carlyle and Advent International decided they could not take on tea plantations in East Africa, facing difficult human rights and reasonable pay issues.

Their decision underscores the increased sensitivity of investors, even in the traditionally harsh private equity industry, to assets that have significant environmental, social or managerial risks.

Advent International excluded the tea properties from their final offer, said two people with knowledge of the case, while Carlyle completely dropped out a few days before the offer deadline this week.

Advent had become more and more concerned about taking responsibility for the health, welfare and safety of thousands of plantation workers, said one of the people familiar with the matter. Managers on the plantations have power not only over the jobs of the workers, but also their housing and medical care, as the sites are often located in remote areas and are dependent on workers picked up from elsewhere.

The acquisition group was particularly concerned that violence could flare up on its Kericho plantation in Kenya following the country’s parliamentary elections, which are set for August next year. Seven people were killed, 56 women raped and many injured in an assault on the plantation in the wake of controversial elections in 2007, according to a complaint filed by 218 Kenyans to two UN agencies last year.

A report on the plantations made for Advent, “did not turn into beautiful reading,” added one of the people familiar with the situation. This led the buying group to exclude the plantations from its offer and instead bid on the marks.

Unilever’s Kenyan business is undergoing allegations that it did not adequately help workers affected by an attack on its Kericho plantation in the midst of ethnic violence in 2007. It has recently come into conflict with Kenyan workers as it automates picking, which has led to cuts.

The Kenyan plantation has also been the scene of reported sexual harassment of female workers by some leaders. Unilever has responded with initiatives including more female leaders, training and an ethical hotline.

Wages in the tea industry are low. PG Tips, one of Unilever’s brands, says it pays workers in Kericho about two and a half times the statutory minimum income in agriculture in Kenya. This was raised to the equivalent of just over £ 53 a month in 2018.

Francis Atwoli, general secretary of the Central Organization of Trade Unions of Kenya, said there were still outstanding claims for compensation from workers, which could mean “the potential buyer would have a lot of problems”.

About 8,500 people are permanently employed at the Unilever plantations in Kenya, Tanzania and Rwanda, and that rises to about 16,000 when temporary staff are added in high season, Unilever said.

Carlyle dropped out of the lengthy auction due to concerns about “ESG considerations,” a person familiar with their mindset said in connection with concerns about plantation conditions.

Blackstone decided early on not to bid on the tea department, partly due to concerns about the treatment of workers, another person added. They described it as “a massive ESG problem”,

CVC made sure that ESG specialists visited the plantations as part of its due diligence process, and decided that Unilever had been a good manager of the business, said a person with knowledge of the case. CVC declined to comment.

Its dealers also took comfort from Unilever’s reputation for being proactive on ESG issues and from the company’s membership of the Ethical Tea Partnership, which aims to make the tea industry fairer and more environmentally sustainable, the person said.

Unilever says they have several programs to tackle teens’ “social challenges.” It said: “Working conditions are fully in line with global companies’ health and safety standards, which exceed local requirements, meet living wage obligations and offer significant additional benefits such as housing, free health care, kindergarten and primary education.”

Growth has limped in Unilever’s tea division, now renamed Ekaterra, which has € 2 billion. in annual sales.

While some buyers were discouraged by the plantations, several had been attracted to the idea of ​​grabbing what they saw as a low-priority entity in a conglomerate that could be revived with new investments in marketing and advertising.

Unilever said the price that CVC has agreed to buy the division for was 14 times historically reported earnings before interest, tax, depreciation and amortization, “a significant premium for valuations of similar companies… This shows both the quality of The business and the robustness of the sales process ”.

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