Unilever nearing deal to merge food business with McCormick

(Sharecast News) - Unilever said on Tuesday that talks to sell most of its food business to US-based McCormick are now advanced and a deal could be announced later in the day. The company first announced on 20 March that it had received an offer from McCormick for its food business, which owns the Hellman's, Bovril and Marmite brands.

"The company is now in advanced discussions with McCormick & Company regarding a potential transaction," Unilever said on Tuesday. "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."

If a deal were to happen, it would likely involve a combination of Unilever Foods - excluding parts of its foods portfolio such as its business in India - with McCormick, with an upfront cash component of about $15.7bn and the majority of the consideration in McCormick equity.

Upon completion, it is expected that Unilever and its shareholders would hold 65% of the combined company.

Unilever said the deal would be undertaken by a Reverse Morris Trust, which is intended to be tax-free for US federal income tax to Unilever and its shareholders.

"Full terms will be announced if a transaction is agreed," it said.

At 0940 BST, Unilever shares were up 0.7% at 4,561.50p.

Russ Mould, investment director at AJ Bell, said: "The market could be about to make its own version of Marie Rose sauce as a combination between Unilever's food business, which encompasses Hellman's mayonnaise, and McCormick, owner of French's Ketchup, moves closer to fruition.

"The presence of activist investor Nelson Peltz on the shareholder register since 2022 has led to consistent pressure on Unilever's management to streamline the business.

"Having shed its ice cream division last year, this demerger of its food business is the first big strategic move under CEO Fernando Fernandez since he took the top job a year ago.

"While Unilever's food operations generate strong margins, growth has lagged behind its personal care and beauty brands. Competition from unbranded alternatives hasn't helped and, in a GLP-1 world, people's literal appetite for less healthy packaged food is being suppressed.

"Having slimmed down, Unilever will want to show it is fighting fit for the future and it will get its next opportunity to do so with next month's first-quarter update."

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