Unilever said on
Tuesday it was in advanced talks to combine its food business
with spice maker McCormick in a potential deal that
would deliver $15.7 billion in cash and give shareholders
majority control of the merged entity.
The potential move marks an acceleration of efforts to
reshape Unilever under CEO Fernando Fernandez. More than one
chief executive has tried to refocus the company’s portfolio by
expanding in personal care and beauty, and selling some food
brands.
Unilever’s shares are at their lowest since mid-2024 as
investors and analysts worry Fernandez could be distracted from
the day-to-day running of Unilever by the potential separation.
And they have questioned the benefits of such an action so soon
after Unilever’s protracted ice cream unit split.
How much is Unilever’s food business worth?
Unilever’s packaged food business accounts for more than a
quarter of group sales, but faces pressure from a shift away
from ultra-processed products, competition from private label
brands, and softer demand as the rise of weight-loss drugs
changes consumer buying habits.
Home to Knorr bouillon powders and Hellmann’s condiments,
the division’s underlying operating margin – which excludes the
impact of foreign currency exchange rates – was 22.6 per cent of
revenue, outstripping the group’s 20 per cent margin last year.
The food business, which also makes Marmite spreads,
reported an operating profit of 2.9 billion euros ($3.34
billion) last year, giving it an enterprise value of roughly 30
billion euros, according to Barclays estimates.
Slower to grow compared with the rest
The business, Unilever’s second largest by sales after
personal care, grew at 2.5 per cent last year, more slowly than the rest
of the group and well below the company’s own mid-term goal.
Underlying sales growth at Unilever’s foods division has
lagged that of other units since the COVID-19 pandemic highs,
repeatedly falling short of the company’s annual goal of sales
growth of between 4 per cent and 6 per cent.
Analysts and investors question the long-term prospects of
the packaged food industry when politicians, including U.S.
Health Secretary Robert F. Kennedy Jr., have highlighted the
potential health risks of processed foods.
Developed markets have reached saturation
Part of the problem is that the business is operating in two
contexts: developed and emerging markets. Unilever’s food
business is growing more slowly in North America and Europe than
in countries such as India and parts of Latin America, where the
group has a stronghold in food and private label products are
less sophisticated, meaning they offer less competition.
Unilever said on Tuesday the proposed combination of its
foods business with McCormick would exclude certain assets such
as its operations in India. It did not provide further details.
“There is more growth in emerging markets, which accounts
for 55 per cent of food for Unilever, but it’s still not enough to make
up for Europe and the U.S. where the market is saturated,”
Barclays analyst Warren Ackerman said previously.