UN Unilever NV

By Saabira Chaudhuri and Rory Gallivan 

LONDON--Anglo-Dutch consumer-goods giant Unilever PLC on Thursday announced plans to divest its spreads division, combine two of its main business units and boost shareholder returns with a higher dividend and share-buyback program.

The revamp, the result of a strategic review, comes as Chief Executive Paul Polman looks to appease investors after rejecting a $143 billion takeover offer from Kraft Heinz Co.

The company behind Hellmann's mayonnaise and Dove soap said the future of its spreads business was now "outside the group" and that it would be sold or demerged. The spreads division includes products such as margarine, but not condiments like mayonnaise. Analysts estimated it could sell for EUR7 billion ($7.46 billion) to EUR8 billion.

The slow-growing spreads unit isn't just another business for Unilever. The company was formed in 1929 through a merger of British soap business Lever Brothers and the Dutch company Margarine Unie, which dated back to 1872.

Unilever also said Wednesday it would combine its foods and refreshment units into one organization to boost growth and cut costs, and look to increase its strategic flexibility for further portfolio changes by reviewing its duel-headed legal structure.

Overall, Unilever said various initiatives--including more efficient marketing spend and supply-chain savings--would allow it to increase cost savings from EUR4 billion to EUR6 billion.

Unilever said it would launch a EUR5 billion share-buyback program this year and raise its dividend by 12%, reflecting greater confidence in its outlook for profit growth.

The company is aiming for a 20% operating margin by 2020, compared with 2016's 16.4%.

Shares in the company rose 0.4% in early trading in London in response to news of the measures.

Analysts had floated an array of actions that Unilever could adopt, including divesting its spreads business, which the company says faces a challenging market, or its entire food arm.

The buyback marks a rare concession by Mr. Polman who has labeled repurchasing shares--a practice that elevates earnings a share, a key financial metric--as financial engineering. Unilever's last share buyback was in 2007. Its last special dividend was in 1999.

Efforts to improve its profitability will also likely be welcomed by investors. The company said it expects to improve margins by at least 0.8 percentage point this year, compared with guidance in February for improvement to be close to that figure. Despite implementing its own version of zero-base budgeting, under which costs are justified from scratch every year, Unilever's profit margins have lagged behind those of several of its U.S. and European peers.

Analysts have sometimes criticized Mr. Polman for focusing on long-term growth, often at the expense of short-term profits. Kraft's approach has changed all that, with Chief Financial Officer Graeme Pitkethly describing it as an inflection point.

"The Kraft bid certainly highlight the importance of getting the balance right between long-term sustainable value creation and short-term value delivery," he said at a February conference.

Unilever is in the midst of an organizational reshuffle at boosting sales that Mr. Pitkethly has described as "the biggest change Unilever has undergone in the last 10 years." It is restructuring its workforce to direct more resources to local markets, and giving product-category-focused teams there more autonomy. Unilever hopes the move will makes it more nimble in responding to local tastes or trends.

Mr. Pitkethly in February said Unilever would focus on better telegraphing the estimated benefits of the changes it is making to shareholders. "We believe that we can do more to communicate the value creation from our existing plans," he said at the time.

Unilever's share price had dipped in the months before Kraft's approach as it reported slower sales growth for 2016 amid troubles in major markets such as India and Brazil. The company has struggled to grow volumes in recent quarters, relying on price increases to boost revenue, something Mr. Polman has criticized as unsustainable.

Kraft backed away from Unilever after it became increasingly clear that any approach would be hostile. Unilever thought the 18% premium offered undervalued it and that the two companies' business models were so different that there would be few synergies from a deal.

Under U.K. regulations governing takeovers, the London-based company has earned a six-month window in which Kraft can't make another approach.

Denise Roland contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Rory Gallivan at rory.gallivan@wsj.com

(END) Dow Jones Newswires

April 06, 2017 05:18 ET (09:18 GMT)

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