Terry Smith Exits Unilever After 15 Years Over McCormick Deal

Smith, the founder and chief investment officer of Fundsmith, told City AM that the fund sold out of Unilever (LSE: ULVR) last month after the company confirmed plans to merge its food business with New York-listed McCormick.

"We have sold out of Unilever because the company appears to have abandoned its promised operational focus in favour of activist-driven break-ups," Smith told City AM. Those included its decision to transfer "its food business to McCormick, whose management and returns we do not rate highly."

The departure removes one of Unilever's top-10 shareholders, a position Fundsmith held for more than 15 years, according to Smith. The fund first invested in Unilever in 2010. The holding more than doubled in value over that period, but had been a consistent detractor from fund performance since the pandemic, regularly appearing on Fundsmith's monthly list of top detractors.

Why Smith walked away after 15 years

Smith's relationship with Unilever has oscillated between frustration and cautious optimism for much of the past decade. In his 2022 annual letter to shareholders, he accused the company's leadership of having "lost the plot" after it announced plans to define a social or environmental purpose for all flagship brands, including Hellmann's mayonnaise, as reported by City AM. That campaign was overseen by then chief executive Alan Jope.

The appointment of Hein Schumacher as Jope's replacement in 2023 briefly restored Smith's confidence. At Fundsmith's annual shareholder gathering, Smith described the management team as "actually pretty decent" and called Unilever one of his fund's most undervalued stocks, according to City AM's reporting.

That optimism proved short-lived. Schumacher was removed after just two years at the helm, amid pressure from activist investor Nelson Peltz, the billionaire founder of Trian Fund Management, who joined Unilever's board in 2022. The Dutch executive was replaced by chief financial officer Fernando Fernandez, who moved quickly to spin out the company's ice cream division and then agreed to sell the remaining food brands to McCormick.

For Smith, the sequence represented a clear pattern: a board responding to activist tempo rather than executing the operational turnaround it had promised long-term holders. The McCormick merger, worth $45bn (£33bn), was the final catalyst.

The governance gap: mega-deals without a shareholder vote

The McCormick transaction has drawn criticism not only for its strategic logic but for the process by which it was approved. Under revised UK listing rules, Unilever's board was able to approve the deal without putting it to a shareholder vote, despite the merger's scale and its implications for the group's structure.

Smith is among several investors who have castigated Unilever for using those rules to bypass shareholder consent, as first reported by City AM. The concern is straightforward: a transaction that transfers an entire division, reshapes the balance sheet, and potentially changes the listing jurisdiction of the combined entity is, by any practical measure, a transformative event. Yet the shareholders who bear the consequences had no formal say.

A spokesman for Unilever defended the approach. "Under the UK rules, it was the board's responsibility to approve the transaction and conclude that it is in the best interests of the company and its shareholders," the spokesman told City AM. The company added that the decision was unanimous at board level and that it would "continue our engagement to explain the benefits of the transaction."

The governance question extends well beyond Unilever. The UK's revised listing regime, introduced to make London more competitive as a listing venue, relaxed requirements for shareholder approval of large transactions. The McCormick deal is among the first high-profile tests of that framework. If the result is a pattern of boards executing transformative disposals over the objections of major long-term holders, the reforms may succeed in attracting new listings while eroding the trust of the patient capital base that underpins premium ratings.

What the McCormick tie-up means for Unilever's register

Under the terms of the merger, Unilever investors will own 65% of the combined entity, which will rank among the largest standalone food groups in the world, according to the company's disclosures. Unilever shares fell 7% when the deal was confirmed, as reported by City AM.

Two concerns dominate the register. First, the amount of debt being loaded onto the merged group. Investors have voiced worries about the leverage profile of the combined entity, though detailed capital-structure terms have not been fully disclosed.

Second, there is uncertainty over whether the merged company will retain a London listing. Several investors have warned that if it opts against a UK listing, the stock will face forced selling from funds with mandates restricting them to UK-listed companies, according to City AM. That risk of a technical overhang adds a layer of uncertainty that has nothing to do with the underlying business.

Fundsmith's exit is a concrete illustration of the problem. Smith's fund held Unilever not as a trading position but as a core quality holding. Replacing that kind of shareholder with index-tracking or momentum-driven capital changes the character of the register and, potentially, the stock's resilience during periods of stress.

Lessons for boards weighing activist-driven restructurings

The Unilever episode offers several practical observations for boards and operators at FTSE-listed companies.

Activist timelines and long-term holders pull in opposite directions

Peltz joined Unilever's board in 2022 via Trian Fund Management, as reported by The Guardian. Within four years, the company had replaced two chief executives, spun out its ice cream division, and agreed to sell its food brands. That pace of change may satisfy an activist seeking to unlock value within a defined holding period. It is less obviously compatible with the interests of shareholders like Smith, who invest on the basis of durable competitive advantages compounding over decades.

Governance shortcuts have a cost

The ability to execute a £33bn disposal without a shareholder vote is a feature of the new listing rules, not a bug. But exercising that right in the face of vocal opposition from long-standing holders carries reputational and practical consequences. Boards that bypass consent on deals of this magnitude risk signalling that shareholder engagement is performative.

Register composition matters

Unilever's premium rating historically reflected, in part, the stability of its shareholder base. Quality-focused, long-duration funds like Fundsmith provided a floor of demand that smoothed volatility. Losing those holders does not just reduce demand for the stock; it changes the feedback loop between management and owners. A register dominated by shorter-duration capital tends to amplify pressure for further restructuring, creating a cycle that can be difficult to reverse.

Unilever's board maintains that the McCormick merger is in the best interests of shareholders. Smith's departure suggests that at least one of its most prominent long-term holders disagrees. The tension between those two positions, activist urgency against patient compounding, is unlikely to be resolved by this deal alone. It is a structural fault line that every FTSE board considering a transformative transaction will need to navigate.