Unilever’s talks over selling its food business has been met with a marmite reception as analysts warned a deal may not pay off until the long-term.
The FTSE 100 giant said on Friday it is in talks with US spice and seasoning maker McCormick over offloading its food brands, including Marmite and Hellman’s.
The move is the second such major divestment following the firm’s decision to offload its ice cream brands – including Ben & Jerry’s and Magnum – last year.
The announcement faced a tepid reception from the market, with Unilever’s share price up 0.6 per cent to 4,604p.
Analysts said the company’s move to slim down its offering and focus on its personal care brands is positive, but cautioned that the complexity of a potential deal means investors are not getting excited about short-term rewards.
Dan Coatsworth, head of markets at AJ Bell, told City AM: “Unilever investors should not be alarmed by the food news. The company has signalled for some time that it wanted to slim down and be more focused, and it was clear the focus would be on beauty, personal care and wellbeing.
“What’s left would be the new-look Unilever for the future. At that point, expect to see more money put into marketing its products and potential bolt-on deals to expand the beauty, personal care and wellbeing interests.”
But Kathleen Brooks, research director at XTB, told City AM investors are cautious about the pay-offs of a deal because Unilever’s ice cream spin-off proved to be complicated.
She said: “The spin off of Magnum was protracted and drawn out and undoubtedly meant that resource and company focus was taken away from other parts of the business.”
Investors brace for long-haul sale
Investors are bracing for a drawn-out sale process, she said: “Unilever’s food business’s profits are triple that of McCormick’s, so Unilever may have to engage in a complex structure where it is in a joint venture with McCormick to start with.”
Chris Beckett, consumer staples analyst at Quilter Cheviot, said more patient investors will be rewarded if they can stick with Unilever during a long sale.
He said: “For Unilever, the loss of food would be margin dilutive at the outset, but it could free up capital for expansion in beauty or over the counter health, where management sees greater long term potential.
“Even so, investors will be wary of execution risk in anything other than a clean sale.”
Unilever has been pivoting towards a stronger focus on its beauty and personal care brands since the arrival of chief executive Fernando Fernandez.
But analysts said some investors are growing frustrated with the pace of this turnaround.
Despite the cost-cutting plans costing thousands of jobs, the company reported a dip in turnover in the last year, down four per cent to €50.5bn.
Fernandez had said that “slowing markets” were to blame for the modest results, as he insisted that his turnaround was delivering a “simpler, sharper and faster Unilever”.
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