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 Amsterdam, 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 0.9% in afternoon 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 09:29 ET (13:29 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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