Unilever PLC is engaged in negotiations to sell its food division to spice and seasonings manufacturer McCormick & Company, marking the most significant restructuring effort for the Hellmann's mayonnaise owner since its establishment nearly a century ago. The British-Dutch consumer goods conglomerate confirmed on Friday that it has received an acquisition proposal from McCormick, although it cautioned that a final agreement is not guaranteed. The potential equity value of the food business is estimated to be as high as €29 billion ($33 billion). A sale of this magnitude would represent the largest transaction in McCormick's history; the company's market capitalization of $14.5 billion is a fraction of Unilever's £101 billion ($135 billion) valuation.
Financing specifics have not been disclosed, but a person familiar with the matter indicated the deal would likely be structured as a Reverse Morris Trust, a merger mechanism designed to achieve tax-free status. The two companies are reportedly striving to reach an agreement before the end of the month.
Divesting its food operations would signify Unilever's exit from direct competition with major food rivals such as Kraft Heinz, Nestlé, and PepsiCo. This move would pivot the multinational corporation towards becoming a dominant home and personal care entity, comparable to companies like L'Oréal, Beiersdorf, and The Estée Lauder Companies. Unilever's Chief Executive Officer, Fernando Fernandez, who assumed the role a year ago, has clearly signaled that food is no longer a primary focus, identifying beauty, personal care, and health as the pivotal drivers for future growth.
Large food manufacturers are navigating a multi-year transformation as consumer spending, particularly in the United States, weakens amid high inflation and geopolitical uncertainty. In markets like the UK, supermarkets are also gaining market share with high-quality private-label products. Concurrently, trends such as the use of weight-loss medications and dietary shifts favoring high-protein, high-fiber, and minimally processed foods are prompting consumers to purchase less overall and opt for healthier, fresher alternatives. Compared to the growth observed in beauty and personal care, these dynamics have diminished the appeal of the food sector for multinationals like Unilever. Consumers are increasingly willing to splurge on beauty and personal care, embracing everything from multi-step skincare routines to fragrance collections.
Fernandez has expressed his ambition for brands like Dove soap, Liquid IV hydration multipliers, and Dermalogica skincare to contribute to two-thirds of Unilever's turnover in the medium term, up from approximately half of total revenue currently. Analysts at Bernstein, led by Callum Elliott, noted that diversification was "largely justified" in the 1990s and early 2000s when consumer goods conglomerates pursued a "bigger is better" strategy. However, this model has shifted: "The benefits of cross-category scale no longer outweigh the drawbacks of complexity," Elliott wrote on Friday.
Over the past decade, Unilever has been transitioning towards a more streamlined business model, reducing its reliance on food. The company has already divested its tea business, its global spreads division—which included the "I Can't Believe It's Not Butter!" brand—and more recently, the snack brand Graze and plant-based meat manufacturer The Vegetarian Butcher. Last year, Unilever spun off its ice cream business into a separate entity, retaining a nearly 20% stake, and has allocated between €1 billion and €1.5 billion for the sale of smaller food brands. Nevertheless, Unilever is unlikely to sell its remaining "highly attractive" food portfolio at a discount. The division still boasts a strong portfolio of brands, including Hellmann's mayonnaise, which holds a dominant position in the US and Brazilian markets, and Knorr bouillon, Unilever's second-best-selling brand after Dove.
A potential deal represents a significant test for McCormick, which is dwarfed by the size of Unilever. Founded in the US in 1889, initially selling root beer, McCormick has evolved into a major producer of spices and seasonings. Known for its red-and-white-capped spice and herb jars, the company is now striving to become a leader on global condiment shelves. In recent years, McCormick has acquired local leaders in markets like the UK and Poland, expanding its product range from spices to become a major seller of items like hot sauce and flavored mayonnaise, which are particularly popular with younger consumers. Its most substantial step into condiments was the $4.2 billion acquisition of RB Foods from Reckitt Benckiser Group Plc in 2017, which brought key brands like French's mustard and Frank's RedHot sauce into its portfolio. Approximately a decade ago, an attempt to acquire UK-based Premier Foods, owner of the Bisto gravy brand, ultimately did not proceed.
Following the news, Quilter Cheviot analyst Chris Beckett wrote that combining Unilever's food business with McCormick would be "no easy feat," noting that "the gap in scale, combined with McCormick's current leverage of 2.7x, suggests any deal could be highly complex." Earlier this week, analysts warned that while a sale would benefit Unilever's shareholders and allow the company to concentrate on faster-growing areas, it could also distract management in the short term. Barclays' Warren Ackerman wrote, "Unilever needs to rip the plaster off at some point, and one could argue there's never a right time, but given everything else going on, we don't think now is the time."
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