UN Unilever NV

By Denise Roland and Saabira Chaudhuri 

LONDON-- Unilever PLC said it would divest its 145-year-old margarine and spreads business, part of a broad restructuring in the wake of a spurned takeover approach by Kraft Heinz Co.

The Anglo-Dutch consumer-goods giant said it would also combine its two remaining food businesses, raise its dividend and buy back shares, all in an effort to boost shareholder returns. The revamp, the result of a strategic review, comes as Chief Executive Paul Polman tries to appease investors after walking away from Kraft Heinz's $143 billion offer.

The move adds Unilever's stable of well-known margarines, like Country Crock and I Can't Believe It's Not Butter, to a global deal table already piled high with other packaged-food brands. French's mustard, Stonyfield yogurt and Weetabix cereal are already being shopped around by their owners.

"We need to accelerate our plans to unlock further value, faster," Mr. Polman told reporters. "This was brought home to us by events in February," he said, adding that the Kraft Heinz offer "raised expectations" among investors.

The company behind Hellmann's mayonnaise and Dove soap said it would sell or demerge its spreads business, which includes margarines but not condiments such as mayonnaise.

Analysts estimate the spreads business, which generates about $3.2 billion a year in revenue, could fetch $7.5 billion to $8.5 billion in a sale. But some have questioned its attractiveness on its own to potential buyers, or to investors as a publicly traded unit.

"We suspect other food assets would need to be injected" into the spreads business to interest potential buyers, said Société Générale analyst Warren Ackerman. "It doesn't sound like Kraft Heinz is coming for spreads anytime soon."

An array of food assets are up for sale around the world as consumer-goods companies increasingly favor faster-growing personal-care and home products, or try to maximize scale in the food businesses they retain.

Reckitt Benckiser Group PLC on Monday said it would seek to sell its unit that includes French's, America's best-selling mustard. France's Danone SA last week put its Stonyfield organic yogurt unit up for sale, seeking to clear the biggest antitrust hurdle to its $10.4 billion acquisition of WhiteWave Foods Co.

China's Bright Food Group Co., meanwhile, has hired bankers to look for buyers for its Weetabix cereal and snack brand, according to people familiar with the matter. Swiss frozen-bakery-goods company Aryzta AG has said it is looking at strategic alternatives for Picard, a popular French frozen-food brand.

At Unilever, spreads sales have declined steadily for years in developed markets such as Europe and the U.S., despite the company's attempts to restructure the business, launch new products and buoy sales through marketing campaigns. Mr. Polman has said he wouldn't sell the business unless Unilever received its asking price.

The 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 Thursday it would combine its foods and refreshment units into one organization, based in the Netherlands, to boost growth and cut costs. Excluding spreads, the two units bring in about EUR20 billion a year in sales.

Mr. Polman said Unilever, now based in both the U.K. and the Netherlands, plans to review that dual-headed legal structure with the aim of improving the company's ability to make large acquisitions. The current structure, in which Unilever's capital is split between listings in London and Rotterdam, halves the company's firepower, he said.

SocGen's Mr. Ackerman said the combination of the foods and refreshment units, alongside the structural review, could pave the way for breaking that business apart from the higher-margin home and personal-care arm, which is centered in the U.K.

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

The company also said it planned to nearly double its debt load to fund acquisitions and other investments. Chief Financial Officer Graeme Pitkethly said the increased leverage ratio would lower Unilever's credit rating by one notch but still give it access to short-term debt.

The increased leverage could also help protect Unilever from future bids from opportunistic buyers, said Neil Wilson, an analyst at ETX Capital.

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

Mr. Pitkethly said buying back shares would help the company adjust to its higher debt level but that cash would be first and foremost used for accretive acquisitions of between EUR1 billion and EUR3 billion.

The company said it expects to improve margins by at least 0.8 percentage point this year, compared with guidance in February for improvement around 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.

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

Shares in the company were up 1.3% in midday trading in London.

Ben Dummett and Rory Gallivan contributed to this article.

Write to Denise Roland at Denise.Roland@wsj.com and Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

April 06, 2017 07:37 ET (11:37 GMT)

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