Analysts have suggested that Unilever may look to sell its food division in order to fund acquisitions in the home and personal care sector.
Liberum Capital analyst Pablo Zuanic suggested in a note released yesterday (2 August) that he expects Unilever to at some point implement a “large accretive acquisition in the home and personal care space and to partially fund it by selling its food unit”.
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He said Unilever could look to sell its food operations, excluding ice cream and beverages, for around EUR14bn (US$20.05bn).
“Selling this lower growth component would improve the company’s growth profile but at the same time, a deal in HPC would likely increase the company’s franchise strength in the category,” Zuanic said.
He suggested the company might look to acquire parts of Clorox, Colgate, Beiersdorf, or a cosmetics company.
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Reports earlier this year have suggested that Colgate would be the favoured acquisition target, with Unicredit analysts arguing that Unilever might be able to reach its ambitious growth targets by launching a $55m offer for the toothpaste maker. According to reports in The Guardian in February, Unilever wants to double its sales from EUR40bn to EUR80bn and the quickest way to do this would be through an acquisition, with Unicredit describing Colgate as the “prime target”.
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By GlobalDataSpeaking to just-food today, Investec analyst Martin Deboo said he would “welcome” a review of Unilever’s portfolio. He said the Magnum ice cream and Flora butter maker “participates in a far broader range of categories” than its peers, which makes the company “relatively complex to manage”.
However, Deboo said that it is “quite clear” that Unilever sees its growth coming from household and personal care but claimed the “routes to exiting food aren’t that straightforward”.
The Investec analyst said that Unilever may struggle to find a buyer for the division. “It’s hard to conceive of anyone who would buy it wholesale,” he said.
Deboo explained that a more realistic prospect might be an exit from the spreads and margarines business. However, he added that there could be hurdles to even selling just that business.
“If you look at the potential alternative owners of that business, they tend to be diverse around Europe and the US and to be smaller, privately-owned companies or co-operatives, and it is not clear that these companies would have the appetite for what would be a very substantial deal,” he said.
Earlier this year, Unilever CEO Paul Polman revealed plans to “optimise” the company’s spreads business and to run the division with “30% less people” to make it more efficient.
Polman told just-food that Unilever was developing “an organisation that is leaner and faster to deal with the challenges that we have”.
He said Unilever was focusing on accelerating the growth of its spreads business in Europe and North America, with the division having “sharpened” its innovation programme.
Deboo highlighted the profitability of Unilever’s spreads business, which he thinks has close to 20% operating margins. He said that any attempt to exit spreads would dilute Unilever’s group margin and earnings, which would make it “presentationally, not a straight-forward deal”.
He also said that Unilever would have to be “confident” that it would be able to cut stranded central overheads following the disposal of such a business to make the deal “suitably enhancing”.
Deboo pointed out that Unilever was unable to manage that when it sold its frozen food business. “A significant amount of central overhead that the frozen business was supporting, stayed in the company, and there is the risk that this might happen again with spreads,” he added.
Elsewhere, the speculation was cooled by independent analyst James Amoroso. He played down the prospect of the company selling its food division, which he said was “unlikely”. He added: “The splitting of Unilever is an old recurring story.”
Amoroso said that food allows Unilever “too many entry points into emerging markets and into new pricing segments” as well as giving it “extra critical mass in others”.
He said Polman would “continue to review and refine Unilever’s market positions over time” and added: “I don’t see a revolution, more an evolution.”
Unilever declined to comment on the speculation.
