According to persons familiar with the situation, two of the three final bidders for Unilever’s tea segment balked at taking on the company’s plantations due to worries over labor conditions.
CVC Capital Partners bought the tea division, which includes the PG Tips and Lipton brands, for €4.5 billion this week.
However, after Carlyle and Advent International decided they couldn’t take on the tea plantations in East Africa, which confronted serious human rights and fair pay problems, the Luxembourg-based buyout group was left as the sole bidder ready to buy the entire division.
Their decision highlights investors’ increased sensitivity to assets with significant environmental, social, or governance issues, even in the typically hard-nosed private equity market.
Two people familiar with the situation say Advent International left the tea plantations out of its final offer, while Carlyle pulled out just days before this week’s bid deadline.
According to one source acquainted with the situation, Advent had grown more anxious about bearing responsibility for the health, welfare, and security of thousands of plantation employees. Because the plantations are typically in distant places and rely on laborers brought in from outside, bosses have control over the workers’ occupations and their housing and medical care.
The buyout firm was particularly anxious that unrest would erupt on its Kericho plantation in Kenya following its national election in August of next year. According to a complaint filed by 218 Kenyans to two UN organizations this year, seven people were killed, 56 women were raped, and many more were injured in an assault on the plantation following disputed elections in 2007.
One of the persons acquainted with the matter noted that a report on the plantations created for Advent “didn’t make for pretty reading.” As a result, the buyout firm decided to leave the plantations out of its offer and instead compete for the brands.
Unilever’s Kenyan division is investigating charges that it neglected to appropriately assist workers harmed by ethnic violence on its Kericho plantation in 2007. It has recently clashed with Kenyan workers as it automates picking, resulting in job losses.
Some bosses on the Kenyan plantation have also been accused of sexual harassment of female workers. Unilever has responded with more female leaders, training, and an ethics hotline, among other things.
Tea is a low-paying industry. Unilever’s PG Tips brand claims to pay workers in Kericho about two and a half times the official minimum agricultural wage in Kenya. In 2018, the amount was increased to slightly over £53 per month.
According to Francis Atwoli, secretary-general of Kenya’s Central Organization of Trade Unions, there are still ongoing demands for compensation from workers, which could imply “the possible buyer would have a lot of problems.”
Unilever employs roughly 8,500 people permanently on its plantations in Kenya, Tanzania, and Rwanda, with the number rising to about 16,000 during peak season when temporary workers are hired, according to the company.
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One individual familiar with Carlyle’s thinking said they backed out of the long-running auction because of “ESG reasons,” which refers to concerns over plantation conditions.
According to another source, Blackstone opted early on not to bid for the tea segment due to worries over worker welfare. It’s “a major ESG concern,” they said.
According to a source familiar with the situation, CVC arranged for ESG professionals to visit the plantations as part of its due diligence process and concluded that Unilever had been a good business steward. CVC did not respond to a request for comment.
Unilever’s reputation for being proactive on ESG problems and the company’s involvement in the Ethical Tea Partnership, which aims to make the tea industry fairer and more environmentally sustainable, reassured its dealmakers, according to the source.
Unilever claims to have a number of programs in place to address tea’s “social issues.” “Working conditions are entirely compliant with global business health and safety standards that surpass local norms, they satisfy living wage pledges, and they provide considerable additional benefits such as housing, free healthcare, and nursery and primary school education,” the statement stated.
Unilever’s tea division, which has been rebranded Ekaterra and has annual sales of €2 billion, has slowed.
While the plantations turned off some bidders, others were lured to the idea of buying what they perceived as a low-priority subsidiary within a conglomerate that could be revitalized with new marketing and advertising spending.
CVC agreed to buy the division for 14 times historical reported earnings before interest, taxes, depreciation, and amortization, according to Unilever, “a substantial premium to valuations of similar companies… this demonstrates both the quality of the business and the robustness of the sale process.”
