THE WALL STREET JOURNAL Wednesday, August 29, 2001 Page A8 CSFB's 'Sell' on Unilever Intensifies Doubts By Sarah Ellison Staff Reporter of The Wall Street Journal LONDON - A year after Unilever's $20 billion acquisition of Bestfoods of the U.S., investors are becoming increasingly concerned about Unilever's performance and its integration of Bestfoods. Chief among their concerns is whether Bestfoods' sales performance prior to the deal was artificially propped up by special promotions unrelated to consumer demand, since retailers are now destocking such merchandise. This was a major factor in Credit Suisse First Boston's move yesterday to downgrade Unilever's shares to a sell rating from a hold. Bestfoods' growth before its acquisition by Unilever "was driven quite hard by trade promotions rather than consumer demand," according to the CSFB report. "This suggests that Bestfoods was offering promotions to supermarkets and other retailers even when consumers themselves did not have a heavy demand for Bestfoods' products." Hellman's mayonnaise and salad dressing, for which Bestfoods is best known, have shown a decline in U.S. market share since Unilever made its acquisition, according to data released by market research firm IRI. The Anglo-Dutch consumer products company declined to comment specifically on the CSFB report but said that the inventory situation at Bestfoods was discussed at the company's presentation of its first half results last month. At the time, Unilever's chief financial officer, Rudy Markham, said that destocking by retailers is a general feature of the U.S. retailing market today, and Unilever said Bestfoods' lagging performance was due due to an aggressive approach to integrating the company with Unilever's other operations. Also at that time, Niall Fitzgerald, the company's co-chairman, discussed the lagging performance at Bestfoods, which dragged down Unilever's earnings by 0.9% in the second quarter. "We very consciously decided we would do this fast and get the pain of it over with, " he said. Unilever has disposed of Bestfoods' baking business and the company's soups and sauces businesses and is shedding smaller brands to focus on main brands like Hellman's and Knorr soups. Unilever shares closed down 5.5 pence in London yesterday, to 601 pence ($8.67). The CSFB downgrade resulted in the only sell rating for Unilever, out of 31 analysts who follow the stock, according to Thomson Financial/First Call. Another 25 analysts rate the stock a market performer, and five others say it underperforms. Only about 1% of the analyst recommendations for individual stocks tracked by Thomson are sell and strong-sell ratings, because investors now often interpret the term "market perform" in a somewhat negative light, suggesting that such stocks may be candidates for selling.