Unilever butters up investors by selling margarines unit
After the ‘wake-up call’ of a takeover bid by Kraft Heinz, Unilever is selling its under-performing spreads division and launching a shares buyback of about €5bn
The Hague — On Thursday, Dutch-British consumer products giant Unilever announced the surprise sale of its under-performing margarine division, seeking to soothe investor jitters after spurning a takeover bid by US rival Kraft Heinz.
The Rotterdam-based group said it is also planning to boost dividends in 2017 by 12%, and will launch a shares buyback of some €5bn by the end of the year. "After a long history in Unilever, we have decided that the future of the spreads business now lies outside the group," CEO Paul Polman said in a statement.
The move came amid a company review launched in the wake of an out-of-the-blue takeover bid in February by US food and beverage giant Kraft Heinz. "The Kraft Heinz bid was a massive wake-up call. Unilever realised it needed to do more for shareholders, but it also has to improve margins," said analyst Neil Wilson at EXT Capital.
One poll showed that only half the company’s shareholders had agreed with Polman’s flat-out refusal to even consider Kraft’s offer. With the moves announced on Thursday, Unilever "wants to make sure shareholders are not tempted by another bid and is throwing cash at the problem", Wilson added, warning it "smacks a little of short-termism". Unilever’s margarines and spreads include such household names as Flora, and Stork along with Blue Band and Rama.
It was set up as a separate unit in 2015 but "remains challenged in developed markets and we have now taken the decision to launch a process to either sell or de-merge spreads", the company said in its statement.
The latest moves are aimed at making the company more attractive to investors and to forestall any further unwelcome advances from rivals. In February, Unilever snubbed an offer of an 18% premium on its share price from Kraft saying it "fundamentally undervalued" the group. The bid, which had valued Unilever at a whopping $143bn, had "no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions", it said at the time.
Kraft’s pursuit of Unilever would have merged the maker of Kraft cheese and Heinz ketchup with its European counterpart, whose products include Q-tips, Hellmann’s mayonnaise and Ben & Jerry’s ice cream. Unilever also has an extensive personal care section, which includes such brands as Dove.
Global food companies have been struggling with anaemic economic growth in many key markets amid changing and health-conscious lifestyles. "The reality of 21st century life is that people are more likely to grab breakfast ‘on the go’ than sit around the table with a few slices of toast," said George Salmon, equity analyst at Hargreaves Lansdown. While the sale of the spreads unit may "grab the headlines ... the big news for shareholders is the more aggressive plans for increasing profitability," he added.
Unilever also intends to look at changing its historic status as a dual-listed company; it is listed in both London and on the Amsterdam AEX, where its share price on Thursday was up 0.75% at €46.92.
As part of the review, the company found that "our dual-headed ... legal structure adds complexity when undertaking such change", the statement said. Unilever was looking at it "with the objective of achieving greater simplification and strategic flexibility". Unilever would not change its long-term business model, which Polman described as one of "sustainable value-creation" on the BBC’s Today programme. But alluding to the failed takeover bid, he said "the events of the last few weeks have pointed out that we have opportunities to drive further value in the business".
Unilever chairman Marijn Dekkers said the review, to be completed by the end of the year, had "been detailed and comprehensive": "It has confirmed that our model of long-term shareholder value creation has been successful and remains as valid as ever."