Unilever food spinoff is a tricky M&A soufflé
07/04/2026 11:58
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Neil Unmack LONDON, April 7 (Reuters Breakingviews) - Consumer goods companies are skilled at repackaging tired brands into expensive products. Yet, Unilever ULVR.L has done the opposite: announcing a radically new structure via a spinoff with U.S. peer McCormick MKC.N, only to be handed a near 7-billion-pound ($9 billion) share price decline. CEO Fernando Fernandez can still justify the deal but has yet to prove he can pull it off. The logic behind Unilever’s restructuring is hard to fault. Food is slow growing and is likely to lag further as weight loss drugs bite into demand. Meshing the 92-billion-pound group’s Knorr and Hellmann’s mayonnaise with Cholula maker McCormick will create $700 million of synergies, and a leader in condiments and flavours, resulting in a faster-growing business. The Unilever that’s left behind will be focused on health and well-being products like soap and shampoo, which command higher valuations than food. Shareholders should then have stakes in two stronger companies. The upside could be substantial. The deal is expected to take over a year to complete but when it does investors will have a 65% share in the new, larger McCormick. That holding was valued at $29 billion, or 24.7 billion pounds, when the tie-up was announced, but McCormick has since fallen, implying a current value of around 22 billion pounds. Unilever will also get 13.3 billion pounds of cash. And, if the non-food Unilever business was valued at 20 times forward 2027 net income, in line with the average of leaders Procter & Gamble PG.N and Colgate Palmolive CL.N, it would be worth some 95 billion pounds, using Jefferies forecasts. Add it up, and the total should be just under 130 billion pounds, far above Unilever's current market capitalisation of around 92 billion pounds. One issue is the deal is pricey. Spinning off the food company will cost as much as 4.2 billion pounds, after transaction charges and tax bills, Jefferies analysts estimate. But it also creates savings. Unilever’s 65% share of those is worth at least 2.6 billion pounds in today’s money, capitalised on a conservative multiple of 10, offsetting much of the costs. Technical factors may also be at play. Investors in Unilever may not know McCormick well, and until recently were not expecting to own a pure food company. Some index-tracking funds may also be forced to sell. But these factors alone don’t explain the full share price fall. The bigger risk is execution. McCormick will need to absorb a company significantly larger than itself. Unilever will also need to push through more savings to compensate for a smaller revenue base. And, lastly, the new non-food Unilever will need to command a higher valuation. It's currently growing at 5% per annum, in line with market leaders. Yet assets like Dove soap or Rexona deodorant are vulnerable to cheaper competition from store brand competitors. Investors who don’t like the deal have little choice but to accept it. There are no obvious counterbidders, and a shareholder vote is not required. They should eventually be rewarded, but Fernandez will first need to show he can master this M&A recipe. Follow @Unmack1 on X. CONTEXT NEWS Shares in Unilever have lost some 7% since the Hellmann's mayonnaise maker on March 31 announced a plan to merge its food business with U.S. peer McCormick. Unilever shares were trading at 4217 pence, as of 0944 GMT on April 7. After selling foods, Unilever should trade closer to health leaders https://www.reuters.com/graphics/BRV-BRV/znpnmjdrwvl/chart.png (Editing by Aimee Donnellan; Production by Shrabani Chakraborty) ((For previous columns by the author, Reuters customers can click on UNMACK/neil.unmack@thomsonreuters.com))