This is an audio transcript of the Behind the Money podcast episode: How tea plantations are testing private equity
Michela Tindera
When it comes to tea, one of the top companies in the game is Unilever. It’s behind household brands like Lipton, PG Tips and Tazo. And so it’s a big deal when it decides to sell a part of its tea business last year.
Kaye Wiggins
Private equity funds love to buy kind of units of big conglomerates. They think that this is like where they can really shine.
Michela Tindera
The FT’s Kaye Wiggins says some of these private equity firms had been eyeing Unilever’s tea business for years.
Kaye Wiggins
They think they can often buy a division of a company that’s maybe been a bit unloved within this wide, sprawling conglomerate. And then they can run it independently as a standalone business and invest in it and make it more valuable independently.
Michela Tindera
In other words, it’s a great business to flip and ideally turn a profit on. But preparing to bid for a business like this, it’s no small task.
Kaye Wiggins
They’ll start out by kind of assessing the company itself and its financials and then its competitors in the market, the wider marketplace. They’ll do layers and layers and layers of analysis about, of how much money the company could potentially make in the future, what you could do differently, which jobs could potentially be, which jobs could potentially be cut.
Michela Tindera
Eventually, three private equity firms emerge as leading bidders. They’re the US-based Carlyle Group and Advent International and Europe-based CVC Capital Partners. But then in the run-up to the bid deadline last November, something happens. Just days before a final bid deadline, Carlyle withdraws altogether. And then Advent, in effect, drops out, too. So that leaves just CVC.
Kaye Wiggins
It’s not clear to me whether, how aware CVC was in those final stages of the bidding process of the fact that it was actually, in effect, the only bidder. Because until then, they had thought they were bidding against Advent and possibly even Carlyle.
Michela Tindera
CVC declined to comment on this. But in the end, Unilever announces that it’s accepted CVC’s $5bn offer to buy its tea business. So take a step back and think on this. These three firm spent a bunch of time, energy and money working on bids to take over a tea business for billions of dollars. And then all of a sudden, at the very end, two of them disappear. Weird, right? It catches Kaye’s attention, too.
Kaye Wiggins
When it emerged that at the eleventh hour of an auction process to sell this business, like some of the bidders had pulled out either entirely or partly of the sale process, this was the moment that we thought, hang on, there’s a potentially really interesting story here.
[MUSIC PLAYING]
Michela Tindera
Sources tell the FT that some of the bidders dropped out over concerns with the working conditions on Unilever’s tea plantations in Africa. But one private equity firm did stick around, and soon it’s going to take over the business. This acquisition represents a new challenge for the private equity industry. They’ve long been known for doing things like cutting wages and jobs and keeping a very close eye on the balance sheet. But now, more than ever before, investors are scrutinising private equity firms’ ethics. On today’s episode, we’re looking at how Unilever’s sale of its tea business has become a testing ground for how private equity approaches the pay, working conditions and safety of some of the world’s most vulnerable workers. I’m Michela Tindera at the Financial Times. And this is Behind The Money.
When you’re trying to understand how companies like Unilever started operating tea plantations, you’ve got to look into the past all the way back to Britain’s colonial empire. Kenya’s Kericho County is an ideal place for growing tea plants. The land has rich, fertile soil and a warm, temperate climate. That land is so appealing that as the British empire expands to Kenya in the late 19th and early 20th centuries, they decide to cultivate that land. A few years ago, a complaint was submitted to the United Nations that explains how that takeover happened. Indigenous people, some of whom are still alive today, say that the British came to Kericho and a neighbouring county, drove out the people who are living on that fertile land and made it available for white settlers to take over. So eventually tea companies come in and start plantations on some of that land. Judith Evans is the FT’s consumer industries correspondent. She explains that tea companies would tend to bring in new groups of labourers from other areas and set up sort of a small town for those employees.
Judith Evans
And then obviously, because of the remoteness of the location, they would end up really providing everything for those people. So they would end up producing kind of workplace housing, schools, you know, pharmacies.
Michela Tindera
And now, decades later, this system that came about in the wake of British colonisation is still used to this day. Unilever enters the picture when it buys the tea brand Brooke Bond in 1984. Brooke Bond operates in the fertile Kericho County. Over the years, Unilever has tried to paint a rosy picture of plantation life. For example, listen to this promotional video that the company put out.
[MUSIC FROM PROMOTIONAL VIDEO]
Unnamed man
Those of us who work here like to say it is where goodness is born. Whenever someone halfway across the world sips a cup of our tea, they’re testing the goodness of these fields.
[MUSIC FROM PROMOTIONAL VIDEO]
Michela Tindera
Unilever has developed a reputation as one of the better employers in the industry. It told the FT that the companies offered its Kericho plantation workers things like paid annual leave, paternity and maternity pay and free food during working hours. But this is a sector that’s also rife with human rights abuses. And Unilever has faced accusations of an unsafe work environment at their plantations. One incident in recent memory really brings into focus how much these workers rely on their employers for safety. Here’s a newscast from Al Jazeera.
News clip
(People screaming in the background) It’s a country where more than half the population live in poverty, and it’s never seen an election campaign as close as this one. A president, once universally popular with people engaged in a search for a better life, is now struggling. If the opinion polls are to be believed, he could lose power to a former ally.
Michela Tindera
In 2007, Kenya holds a national election. It’s a race between incumbent President Mwai Kibaki and opposition leader Raila Odinga. It’s a close and heated campaign. Kibaki is declared the winner, but Odinga contests the results.
Raila Odinga
Fellow Kenyans, we have in the last two days witnessed . . .
Michela Tindera
His party alleges election fraud and this sets off multiple waves of chaos and violence throughout the country. The AP captured video from the time after the election. One video shows a gas station on fire. There are massive plumes of black and grey smoke rising into the air. A car is being consumed by flames. Another video shows a fire truck coming down a road crowded with people. With sirens blaring, water is sprayed in powerful jets on a smoking structure. A United Nations group eventually concludes that more than 1,200 people are killed as a result of the violence. During this time, that violence finds its way to the countryside, to Unilever’s Kericho plantation, and to a woman named Hellen Nyaboke. And when the chaos from the contested election spreads to the plantation, it changes Hellen’s life forever.
Hellen Nyaboke
(Speaking in a foreign language)
Michela Tindera
Hellen, speaking through a translator, told an FT reporter that her husband was killed in one of the attacks. Someone struck him with a machete. One of her sons was beaten to death. Hellen managed to escape by hiding in the tea bushes where she normally spent her days working. In the aftermath of all this, Hellen says Unilever provided some help. She and other workers are evacuated to her home county more than 40 miles away.
Hellen Nyaboke
(Speaking in a foreign language)
Michela Tindera
She says she went six months without pay following the violence. And she says she was eventually paid the equivalent of about $100. But she feels that Unilever should have done more to help her after the attacks. In 2020, a human rights complaint is filed to the United Nations by almost 220 current and former workers from Unilever’s Kericho plantation. It says that at least seven people were killed and more than 50 women were raped on that plantation following the election. Hellen wasn’t part of the complaint, but her issues with the company are in sync with what is alleged. The workers say that Unilever knowingly placed them at a heightened risk of attack after the 2007 elections and then failed to help them afterward. Unilever says it provided, quote, “significant support”, unquote, to the victims in the elections’ aftermath and that it, quote, “fully rejects any allegation that it failed in a duty of care to employees or their families”, unquote. But this event has not been the only issue on the plantations. Between 2008 and 2013, a Dutch NGO and a television documentary separately alleged that some of the senior staff sexually harassed women workers on the Kericho plantation. Unilever responded by introducing things like new training and more female leaders. They also added new, dedicated welfare and human resources roles, peer counsellors and an ethics hotline. So if you’re a private equity firm looking to get into this sector, history shows the type of risks and challenges you’ll probably face. It’s far more than just turning a profit. On the business side, the FT’s Judith Evans points out that things have also been challenging for Unilever.
Judith Evans
It’s not been doing especially well in recent years. It’s sort of slightly in the doldrums. Its sales growth rates, which is a really key metric for the sector, have been a bit lacklustre.
Michela Tindera
And while Unilever has been the world’s largest tea maker at roughly $2bn in annual sales, the tea brands haven’t necessarily been a major part of the company’s overall business. In 2020, the division made up less than 5 per cent of the company’s total revenue.
Judith Evans
Black tea is this very commoditised, there’s an intense price pressure on the sector. So the margins are quite low and it has been pulling down Unilever’s growth rates for more than a decade. So it was quite well signalled that they might sell it.
Michela Tindera
The FT’s Kaye Wiggins says this type of deal is part of private equity’s bread and butter.
Kaye Wiggins
That’s a very standard private equity playbook. That’s like business school textbook kind of private equity play. They call it a corporate carve out.
Michela Tindera
But then Kaye and other colleagues figured out that the other firms had specific concerns about taking over Unilever’s tea business. They were worried about ESG-related concerns. ESG stands for environmental, social and governance. It’s a set of factors that investors use to evaluate a company’s operations, and it’s become more important to private equity firms over the last couple of years.
Kaye Wiggins
So private equity firms, a lot of the money that they have to invest basically comes from public pension funds mostly. Lots of them are in the US but, you know, around the world as well. But a lot of these big public pension funds are now turning around to the private equity groups who they allocate money to and saying, hey, please tell us what you’re doing when it comes to ESG. And private equity firms need to have an answer to that.
Michela Tindera
Kaye says more and more firms are hiring teams of people to oversee what they call ESG metrics, so then they can actually answer those questions from their investors.
Kaye Wiggins
The worry is obviously that if they have insufficient answers to their investors’ questions, that maybe those people won’t commit money to their funds in the future. So they are under pressure to be seen to be acting in the right way when it comes to ESG questions.
Michela Tindera
So the other firms pulled out. It just seemed like the sort of business where if things went wrong, their investors would have some really difficult questions for them. But not CVC. CVC stands by its decision after it wins the bid. They say they conducted their own due diligence before making an offer. They hired the consulting firm EY, which went and visited the Kericho plantation. CVC says they found that Unilever had what they call industry-leading policies and procedures. EY, citing client confidentiality, declined to comment.
[MUSIC PLAYING]
So with all the other bidders so hesitant to make an offer, why would CVC want this business? Kaye says it has little to do with the tea plantations.
Kaye Wiggins
It wasn’t like they looked at this and wanted to be running these tea plantations. They wanted to be running a company that had a good management team, that had scope to grow in emerging markets, that could be run as a standalone company. They like the fact that you could market this as a kind of plant-based product, which might seem kind of obvious (laughter) tea is from plants, but it’s very much in fashion at the moment.
Michela Tindera
Kaye says CVC is also aware of the ESG angle of this investment.
Kaye Wiggins
CVC do say on the Unilever tea business that they want to improve its ESG credentials. I think people are, close to CVC, which would think that actually there’s potential there, for that to be part of the way that they like make the company more valuable in the future if they can address more of these problems on the plantations, at least in theory. I think in practice that’s going to be very difficult.
Michela Tindera
Because, like we talked about in our episode with ESG whistleblower Desiree Fixler, ESG is a very nebulous thing.
Kaye Wiggins
People in private equity will try to create lots of easily measurable metrics by which they can say, we’ve improved this in this way, we’ve improved this, you know. We’ve, we’re measuring the CO₂ emissions. We’re maybe measuring the amount of recycling. We may be measuring the waste we produce. There’s also things you can measure. And then there’s lots of stuff that is about the way a company is run that is kind of less tangible. So there are lots of questions for the private equity industry about whether they’re having a meaningful impact beyond sort of stuff that is a tick-box exercise because it’s easy to measure.
Michela Tindera
Kaye says that this whole idea is an about-face from the way people often think about the private equity industry.
Kaye Wiggins
The private equity industry has a reputation for doing the opposite to this, right? They’re cutting wages. They’re cutting jobs. So, you know, looking at companies in a purely financial manner and having little regard to the social implications of their activities. And so I think that the private equity industry is very keen to rewrite that narrative.
Michela Tindera
But what may work against that goal is time. Private equity firms like to sell a company within two to five years of buying it.
Kaye Wiggins
Lots of the issues that we came across in the reporting about what’s happening on these plantations are not issues that are amenable to a quick fix. There are things that have been ingrained for a long time.
Michela Tindera
Kaye explains that private equity firms like to think broadly when they’re reorganising a company. They tend to have a playbook that they use to buy a company and then get it ready to sell. There’s different sort of levers that they might pull, like cutting production costs or adding clever marketing. So addressing questions of political violence, of colonialism’s legacy, that is far from the usual playbook for CVC.
[MUSIC PLAYING]
Michela Tindera
There was a stipulation with CVC’s agreement to buy the tea business from Unilever. CVC will be sheltered from any potential future cost of claims related to Unilever’s previous treatment of its workers. But some of the challenges from Unilever’s time running the business will carry over to CVC. Experts working to support the rights of tea plantation workers say that issues in the tea industry are systemic and they impact workers not only in Kenya, but also in other places in Africa and India where tea plantations are. And so on the Kericho plantation, there are at least three big issues at hand. Job security, pay and worker safety. The first issue, job security, has to do with how tea is typically collected. Usually workers pluck it by hand. But over time, Unilever has brought in tea harvesting machines, which means they’ve needed fewer workers in the fields. A union rep for the pluckers told the FT that this has led to job cuts. The number of staff on the Kericho site eligible to join a union fell about 50 per cent over the last decade. And when workers lose their jobs on a plantation or accept voluntary early retirement, as was the case at Kericho, they can also lose their homes. This will be a new challenge for private equity.
Kaye Wiggins
They’re used to a much more standard form of employment, where you give someone a job offer and a job contract and they do that job and, you know, they go home at the end of the day and there’s, you know, their housing and health and education is their own personal issue, right?
Michela Tindera
The second challenge is pay. Tea pickers say they aren’t making as much money as they used to. That’s because they get paid based on how much tea they pick. And now, because of the machines, they say they have to walk farther away to find tea. Hellen Nyaboke, who we met earlier, says that her monthly pay fell to less than half of her normal basic wage in 2016. Hellen says she couldn’t find work anywhere else, so she stayed on with Unilever until 2018 when she took a voluntary retirement deal. Unilever denies that the new technology affected their workers’ pay. They say, quote, “changes in take-home wages for field plucking staff may vary because of the seasonal nature of tea crops, or because some workers pick more in a day than others, not because of mechanisation”, unquote. Unilever made a pledge to pay all workers in its supply chain a living wage by 2030 and says that its tea division will maintain the pledge under its new ownership. And then the third issue for CVC is worker safety. Looming over this deal is the fact that general elections are coming up again in Kenya. They’re set to be held in August, which is just around the time that CVC expects to take charge. It’s difficult to predict if there will be violence in the elections’ aftermath again. But a union rep for the plantation workers told the FT for a story published in February that the clock is ticking. They said new security measures are needed for the plantation’s workers before the election takes place.
Kaye Wiggins
There’s very little information available at this particular moment publicly about what CVC is planning to do, how it is preparing to deal with any issues that may arise as a result of the elections, which is to a large extent, have to wait and see. The stakes are quite high at the moment. It matters how CVC handle this stuff, and it is in general much harder to scrutinise and monitor and understand what’s happening when private equity is in control of a company because the standards for disclosure are lower than they would be if the company was listed.
Michela Tindera
There will potentially be some extra opportunity for transparency, or at least the pressure to avoid another scandal. Kaye reported earlier this year that CVC is planning to file for its initial public offering sometime in the fall of this year or in early 2023.
Kaye Wiggins
As a listed company, a lot is gonna have to change for them. There’s going to be a lot more accountability and a lot more scrutiny of the way that they operate. And that, I think, will be a big factor for them in them managing this tea business and the tea plantations. It does mean that they have to start answering questions from analysts on a relatively regular basis. And those analysts are able to ask questions and they’re more open in much more public space, and they could ask questions about the plantations and tea business. They’ll be very aware that there are far more eyes watching what they’re doing at the moment than they would have been had they been remained a private company.
Michela Tindera
As CVC gets ready to take over, Hellen Nyaboke has moved on a bit.
Hellen Nyaboke
(Speaking in a foreign language)
Michela Tindera
She continues to live in Kericho off the plantations with her other children. She does casual jobs for tea workers around the plantations. She says she couldn’t afford to move her family back to her home county, so for now, she’s staying put. But often, she says, she still walks to the plantations where she lost her child. And she says she’s still waiting on Unilever to take responsibility for the consequences of the violence that upended so many lives nearly 15 years ago.
[MUSIC PLAYING]
Michela Tindera
Behind The Money is hosted and produced by me, Michela Tindera. Reporting from Kenya by Andres Schipani. Translation and additional reporting by Donald Magomere. Stephanie Horton is our contributing producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Special thanks to Jessica Dye. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.
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