March 20 (Reuters) - Unilever is in talks to sell its foods business to smaller rival McCormick & Company, a potential deal that would unite the British company's Hellmann's and Knorr brands with the
Analysts and experts react to Unilever's potential food business sale to McCormick
Market Overview and Analyst Reactions
March 20 (Reuters) - Unilever is in talks to sell its foods business to smaller rival McCormick & Company, a potential deal that would unite the British company's Hellmann's and Knorr brands with the U.S. spice maker's Cholula hot sauce.
Analysts at Barclays estimated the enterprise value of Unilever's food division, which has been growing more slowly than the company's overall business, at between 28 billion euros ($32.40 billion) and 31 billion euros.
McCormick's market capitalization is about $14.5 billion, much smaller than the potential value of Unilever's food business, with analysts signaling a possible Reverse Morris Trust transaction- a tax-free deal in which one company merges with a spun-off unit.
Here are some reactions to the potential deal:
Expert Opinions on the Strategic Fit
Robert Moskow, Analyst at TD Cowen
Synergy and Strategic Logic
"We see strong strategic logic for the combination and significant opportunities for synergies."
"This transaction creates an opportunity for McCormick to completely transform its business in terms of scale, international reach, and importance to retailers."
Neil Saunders, Managing Director at GlobalData, A Research Firm
Operational Integration and Market Concerns
"McCormick is a natural fit as it sits squarely in food CPG and has a lot of the operational and logistical expertise needed to integrate Unilever’s food portfolio."
"The concern from investors is that while many of the Unilever brands are high quality, they face pressures in a market that is soft. This leads to questions around how McCormick will maximize value from the deal and generate satisfactory returns."
Chris Beckett, Consumer Staples Analyst at Quilter Cheviot, A Unilever Investor
Acquisition Track Record and Deal Challenges
"To gain scale in food, (McCormick has) been a relatively acquisitive management team ... they've done well with the brands that they've acquired."
"I think the McCormick management team have shown that they can manage food brands well, and I think they could manage a bigger business well."
"To try and get a deal that is giving Unilever a premium to make up for the dis-synergies at the same time making it work for McCormick's shareholders, I think, is probably going to be the difficult bit."
Max Gumport, Analyst at BNP Paribas Equity Research
Strategic Expansion and Industry Precedents
"Strategically, we believe this deal could make sense for MKC. The company has demonstrated an interest in expanding its emerging market exposure and extending its category perimeter. Indeed, it has often used M&A to accomplish these priorities."
The consumer staples industry is littered with examples of “transformational” deals, as this would be, but has few examples of such deals resulting in value creation for shareholders.
Davis Householder, Managing Director at MycoManagement, an Independent M&A and Business Consultant Firm
Operational Challenges and Value Creation
"The real issue is not just funding the deal but separating a large global food platform from Unilever’s broader system without disrupting supply chain, distribution, and brand execution. In deals like this, the paper structure gets attention, but the operational disentanglement is usually where value is won or lost."
Additional Information
($1 = 0.8643 euros)
(Reporting by Richa Naidu, Yadarisa Shabong, Alexander Marrow, Savyata Mishra and Koyena Das, compiled by Neil J Kanatt; Editing by Devika Syamnath)
