After he acquired his first tea estate in Ceylon, now Sri Lanka, in 1890, Scottish entrepreneur Sir Thomas Lipton set out to bring the drink to the masses by conveying it “direct from the tea garden to the tea pot”.
The operation Lipton founded became the world’s largest tea company and it is now on the block. Unilever, which owns Lipton and other big brands such as PG Tips and Brooke Bond, is conducting a sale process for the tea business as growth has faltered.
It has in part retained an integrated business model like Lipton’s, owning both brands and tea estates. That means any buyer of the division now named Ekaterra will have to decide how to handle sensitive questions of human rights and fair pay on three large plantations Unilever owns.
Private equity groups including Advent, Carlyle and CVC have been bidding for the division, which has €2bn of annual sales and could fetch £4bn to £5bn, said people briefed on the situation. Second-round bids are due on Tuesday, though Unilever has said it is retaining the option of a partnership or an initial public offering.
As it manages the sale, Unilever is seeking behind the scenes to resolve one issue that has dogged the tea division. Its Kenyan business has launched a review of claims that it failed to adequately help workers affected by an attack on its 8,900-hectare Kericho plantation amid ethnic violence in 2007.
Seven people were killed, 56 women raped and many injured in the assault, according to a complaint filed by 218 Kenyans last year with the UN working group on human rights and transnational corporations and the UN special rapporteur on extreme poverty and human rights. They are seeking medical and psychological treatment and compensation.
That complaint followed a failed UK civil case: the Court of Appeal in London ruled in 2018 that the matter should be pursued in Kenyan courts and that the claimants had failed to demonstrate that Unilever’s UK-based parent company had a duty of care. The Supreme Court denied permission to appeal.
Unilever has appointed an independent expert to run its review, said a person briefed on the situation. Affected workers hope for an outcome this year, the person said. Another person said the review was unconnected with the spin-off.
Unilever said: “Although the UK courts dismissed allegations against Unilever and held that we could not have foreseen the terrible violence after the 2007 elections nor be held accountable, Unilever Tea Kenya nevertheless felt that the right thing to do was to review if any claimants had not received the support it offered to other employees at the time and, if so, to make up for what they missed.”
It said it would co-operate fully with the UN bodies if they investigate.
The workers’ complaint says their wages were stopped for six months after the attack, while those returning to the plantation received financial help of £80, about one month’s wages. Unilever earlier said it provided “significant support” to victims, including “compensation in kind”, replacing destroyed property, medical treatment and counselling.
While Unilever does not own Sir Thomas Lipton’s former plantation in Sri Lanka, it does own estates in Kenya, Tanzania and Rwanda, where thousands of people live and work.
Estates such as these date back to the British colonial model, which established plantations in remote areas, bringing workers and their families from elsewhere, said Sabita Banerji, chief executive of Thirst, an international roundtable for sustainable tea.
Workers on such estates “are completely dependent on the management for their livelihoods”, she said. These workers, and smallholders supplying the commodity, are particularly vulnerable to poverty, she added.
Unilever belongs to the industry’s Ethical Tea Partnership and says it has several programmes to tackle tea’s “social challenges”, including women’s empowerment schemes that have reached 600,000 people in Kenya and India. It says pay at Kericho is “significantly above the tea industry average”.
More recently, it has come into conflict with Kenyan unions as it automates picking and reduces worker numbers.
These issues may still affect any sale, claimed one banker familiar with the process, who said potential buyers were concerned about environmental, social and governance problems. Another banker said bidders might be overemphasising these in an attempt to buy Ekaterra more cheaply.
Such social problems are among the biggest challenges for global tea brands, said consultant Angela Pryce. “Those brands are often very price sensitive . . . so it’s difficult to envisage an easy solution,” she said.
At the same time, the market is slowing as drinkers in wealthier markets switch to alternatives such as coffee, herbal tea and kombucha.
Julia Buech, analyst at Mintel, said black tea had undergone a “slow but steady long-term decline” in many western markets, only briefly interrupted by the pandemic.
In India and Indonesia, where consumption is rising, Unilever is retaining its tea operations and will also keep its iced tea partnership with PepsiCo. But upmarket and herbal tea brands such as Pukka, T2 and Tazo will join Ekaterra.
There is much riding on the sale for Unilever. Its shares have fallen 5.7 per cent since Alan Jope took over as chief executive in 2019 and it is seen as a potential target for activist investors.
“Shareholders are unhappy with the returns they are getting out of Unilever . . . Management are under pressure,” said Martin Deboo, analyst at Jefferies.
The tea disposal will be the largest since Jope took charge. Yet some observers suggest Unilever has missed a trick. Jamie Isenwater, founding partner at fund managers Ash Park Capital, which owns a stake, said: “It’s a case of the right strategies rather than the right categories . . . there’s a lot you can do in tea.”
Additional reporting by Arash Massoudi and Kaye Wiggins