Unilever In “Advanced Discussions” To Sell Food Unit To Old Bay Maker

Unilever Plc confirmed it is “now in advanced discussions” with Maryland-based spice maker McCormick & Company to sell its food business unit in a $15.7 billion transaction and said a final deal could be announced as soon as today. 

“The Company is now in advanced discussions with McCormick & Company (“McCormick”) regarding a potential transaction,” the Anglo-Dutch consumer goods company wrote in a press release.

Unilever noted, “Work remains ongoing to agree and finalise a transaction and it is possible that an agreement could be concluded today, although there can be no certainty that a transaction will be agreed.”

Unilever explained that if the “transaction were to proceed,” it would combine most of its food business unit, excluding certain assets such as those in India, with the Hunt Valley-based spice company in a transaction valued at $15.7 billion.

After closing, Unilever and its shareholders are expected to own 65% of the combined company. The deal would be structured as a Reverse Morris Trust, making it tax-free for U.S. federal income tax purposes for Unilever and its shareholders.

The transaction is a big move for the spice company, known across the U.S. East Coast for its Old Bay seasoning and other brands such as French’s mustard and Frank’s RedHot. 

McCormick is a much smaller company whose business generates about half of Unilever’s food unit. But the proposed transaction comes as Unilever pivots further toward beauty, personal care, and home products – higher margin items – while transforming McCormick into a major food player.

Wall Street analysts are mixed. 

“We aren’t overly impressed by what we can see of Unilever’s potential disposal of its food business,” RBC Capital Markets analyst James Edwardes Jones told clients earlier. He added that the current deal means Unilever has full ownership of a division dominated by its own two brands, Hellmann’s mayonnaise and Knorr stock cubes.

Jones added that Unilever will have less ownership of a company with an even bigger brand portfolio. He said, “We are not sure of the justification for introducing partial ownership of a less concentrated business.”

Let’s remind readers that Unilever’s pivot into beauty also comes as blockbuster GLP-1 weight-loss drugs sweep the nation and become more affordable, which means Americans are reducing their caloric intake.

Unilever shares in London are up 1%, while McCormick shares in premarket trading in New York are up 4%.

When the proposed deal first surfaced in financial outlets earlier this month, Goldman analyst Natasha de la Grense had “lots of questions on structure” of the proposed deal (read note).

In addition to the Unilever-McCormick proposed deal that could soon be finalized, there were reports that the Anglo-Dutch consumer goods company will freeze hiring worldwide because of price shocks stemming from the US-Iran conflict.