Unilever Plc confirmed on Tuesday it is in advanced talks with U.S. spice maker McCormick & Company to combine its Foods division with the smaller rival in a deal worth around $60 billion including debt, marking one of the biggest consumer-goods transactions in recent years.
At 06:34 ET (10:34 GMT), Unilever shares were up 0.1% in early London trade, while McCormick gained 1.7% in after-hours trading in New York.
The British consumer giant said in a London Stock Exchange filing that "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."
Under the proposed structure, a so-called Reverse Morris Trust, Unilever’s Foods unit, home to Hellmann’s mayonnaise and Knorr soup, would be spun off and merged with McCormick in a tax-efficient transaction.
Unilever shareholders would retain roughly 65% of the combined company. The deal involves a net debt transfer of approximately $15.7 billion to the new entity.
Analysts at Jefferies estimated the merged food company would carry around €17 billion in net debt, implying leverage of 3.9 times EBITDA and an enterprise value of roughly €52.7 billion, or about 12 times forward EBITDA. India operations are excluded from the perimeter.
McCormick, valued at just over $14 billion, brings French’s mustard, Old Bay seasoning and Cholula hot sauce to the combination.
A deal would deepen Unilever’s retreat from food, leaving the group, which carries a market capitalisation of more than $130 billion, focused almost entirely on beauty, personal care and home products.
The analysts noted the shift echoes the playbook of activist investor Nelson Peltz, a Unilever board member with a 1.5% stake, who previously pushed for a similar restructuring at PepsiCo.
Jefferies, which rates Unilever “underperform” with a 4,300p target against Tuesday’s 4,528.5p close, flagged that stranded cost risks from exiting food could prompt the company to pursue further scale in personal care, potentially revisiting a tie-up with Haleon, the consumer healthcare group it sought to acquire in 2022.
source https://www.investing.com/news/stock-market-news/unilever-nears-deal-to-create-60-billion-food-giant-with-mccormick--wsj-4588930
