By David Wainer
Big food mergers typically sound great on paper but look terrible in reality.
The deals often saddle the merged company with complexity, stagnant brands and crushing debt. So when Unilever announced an agreement last week to combine its food business with McCormick in a deal creating a $65 billion behemoth, investors sold off the stocks of both companies.
Still, this deal could be the exception to the rule.
The deal's structure reveals why. It is being done as a Reverse Morris Trust, which lets a company shed a business unit without triggering a towering tax bill.
In this case, the Unilever food business will be spun off to its own shareholders before merging with McCormick. The approach avoids selling the unwanted unit outright, which could generate a large taxable gain. The newly formed company will be helmed by McCormick's management.
There is a catch: To enable the tax-free route, the original parent company's shareholders must end up owning more than 50% of the newly merged company. In this deal, Unilever and its shareholders will own about 65% of the combined foods business, while McCormick shareholders will own 35%. Unilever itself will continue to exist as a personal care, well being and beauty company.
On the surface, RMTs are all about tax efficiency. But Wharton professor Emilie Feldman says such a structure has a hidden virtue in that it tends to produce deals that actually make sense.
Her research shows RMTs have outperformed not just comparable mergers, but also spinoffs, which are equally tax-advantaged. The tax benefit, in other words, doesn't explain the outperformance.
Feldman suspects the outperformance comes because such deals essentially carve out an unloved unit from a bigger company and matches it with a focused partner that can better extract value through greater scale. For an RMT to work, you need a parent willing to divest a unit that doesn't fit, and a partner that makes genuine strategic sense. The structure, she says, biases toward logical mergers.
Feldman has just wrapped up a study with Constance Helfat of Dartmouth's Tuck School covering all 49 RMT deals completed in the U.S. between 1998 and 2023. The deals represented more than $350 billion in transaction value.
The study's still-unpublished findings, shared with The Wall Street Journal, show that RMT-created companies often look like losers initially, posting average shareholder losses of 6.8% in the first six months after completion. But they tend to turn the corner decisively by the 24-month mark, outperforming comparable, traditional mergers by nearly 18 percentage points.
At Unilever, brands such as Hellmann's mayonnaise and Knorr bouillon have long been paired with personal-care icons like Dove and Axe. It is a mismatch that McCormick's management is now pitching as an opportunity.
These brands, the argument goes, will thrive once freed from a parent that treated them as cash cows to fund deodorant and soap, and instead are paired with a company whose entire identity is flavor.
In a call with analysts last week, McCormick executives argued they will find $600 million in annual cost savings by trimming things such as global procurement and supply-chain overlap. To avoid the merger trap of cutting so deep it hollows out the brand -- the Kraft Heinz merger is the cautionary tale -- management plans to plow $100 million of the savings back into marketing and innovation.
The idea is to jump-start brands and accelerate organic sales growth to a 3% to 5% annual clip by the third year. For the stagnant food industry, Unilever included, those would be excellent numbers.
It makes sense on paper, but investors have heard synergy fairy tales before.
Both McCormick and Unilever shares fell more than 5% after the deal was announced though they since have pared back some of the losses. Feldman's research shows that parent companies spinning off units via an RMT typically get a bump at announcement -- an early vote of confidence.
That tells you something about how deep the current skepticism runs. And seemingly with good reason.
Food is a stagnant business. Consumers are trading down to private-label products. GLP-1 weight-loss drugs are threatening to shrink appetites. And the deal's financial projections assume a reacceleration of growth that the industry so far has failed to deliver.
There are also financial risks. Unilever will retain a 9.9% direct stake in the combined company, which it has said it intends to eventually sell. That creates a real overhang for the shares.
Bernstein analyst Alexia Howard worries that the operating margin for the two combined companies of around 21% -- substantially higher than peers -- might reflect years of underinvestment at Unilever that McCormick management will have to spend money to fix. McCormick is taking on serious debt to make the deal happen, around four times the combined company's annual earnings. This leaves little room for error amid elevated interest rates and Middle East uncertainty.
Topping it off, McCormick shareholders will go from owning a tightly focused spice-and- flavor company to holding a minority stake in a sprawling global foods giant.
Yet the strategic logic is there. With this deal, McCormick nearly doubles its emerging-market exposure, from roughly a quarter of sales to more than 40%, gaining Unilever's deep distribution roots in Asia, Latin America and Africa.
It adds iconic global brands it can cross-sell through its existing retail and food service network. And the sheer scale of the combined operation, if managed well, gives it more leverage with retailers and suppliers at precisely the moment the food industry needs it most.
The deal isn't expected to close until mid-2027. This is going to be messy, slow, and complicated. But the data suggests patience could pay off.
Write to David Wainer at david.wainer@wsj.com
(END) Dow Jones Newswires
April 08, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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