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Close Shave, Brexit Style

With July 4th so recently passed, it’s ironic that a country founded by British refugees is once again becoming a British refuge. But for those of us who own shares in British companies, it could blunt the impact of the Brexit and even prove profitable.

A case in point is Unilever, which this week dropped $1 billion for a toehold in an important U.S. market. Unilever bought a company that, while I don’t use its products, I think is destined for more success.

Here’s why: I’m usually a decisive shopper. I know what I want when I leave the house, I go straight to the right store and shelf, and then I get in and get out.  My shopping trips are surgical strikes—except when it came to razor blades.

Before I got fed up and just switched to an electric razor, I would find myself paralyzed in front of a store shelf full of razor blades. There’s a dizzying array available, especially if you hadn’t already spent $40 on a particular razor system. Then there’s the cost: prices range from about $8 for a pack of three replacement blades to nearly $40 for a pack of eight.

And razor blades must be popular with shoplifters because the cabinet is inevitably locked, so you have what feels like an interminable wait for a clerk to come get them for you. 

It became too painful for me.

I clearly wasn’t the only man to have that problem, because back in 2012, Dollar Shave Club LLC launched a subscription system where for $1 a month, members get five basic two-blade razors, or, for $9, four six-blade razors. They hit your credit card every month and ship your blades automatically. That’s as easy as it gets, and the company’s revenues shot from $4 million in its first year to $152 million last year.

The major players in the consumer products industry have started to get wise to men’s frustration, and last year Proctor & Gamble (NYSE: PG) launched its own version of the shave club. And Unilever (NYSE: UL) just bought Dollar Shave Club for about $1 billion. Unilever pays a nice 3% dividend and is a holding in our Conservative Global Income Edge portfolio.

The most obvious reason for the deal is that the American market for men’s shaving products is  worth about $3 billion a year and the competition is getting, ah, cutthroat. One way to get an edge is to make it easier for men like me to meet my daily grooming needs. For instance, Dollar Shave Club had already expanded the line of men’s grooming products it offered on its subscription model, so now Unilever has a ready platform to add its own.

The other big reason is safety. As the world moves through the Brexit process, we’ll see more of our Global Income Edge European holdings pursing American acquisitions that are seen as safe and steady businesses. I think UK-based companies, like Unilever, which has a London headquarters, will be particularly likely to seek out business in American markets as their access to the E.U. market will soon come with strings attached.

The process could play out a bit differently for Unilever since it also has a “co-headquarters” in Brussels, Belgium (given the long-standing nature of the co-headquarters arrangement, I’m not sure that was foresight so much as luck), but other companies like Diageo (NYSE: DEO) are likely to put greater focus on their American businesses.

 


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