Unilever to sell off margarine brands

06 April 2017 by
Unilever to sell off margarine brands

The global company set up its baking, cooking and spreads unit in 2015. Today it has announced it intends to either sell or demerge the spreads division. Analysts believe the brands could sell for more than £4b.

The decision to sell follows Unilever's brand-wide review which began after Kraft Heinz abandoned its offer to buy Unilever for approximately £115b in February this year. The company is also planning to raise its dividend by 12% and launch a share buy-back of €5b (£4.3b) this year.

Unilever has announced it will be looking at simplifying its status as a dual-listed company.

Chief executive officer Paul Polman said that the company is looking toward being "a leaner and more focused business". He said: "After a long history in Unilever, we have decided that the future of the spreads business now lies outside the group. We will look to increase our strategic flexibility for further portfolio optimisation through a review of the dual-headed legal structure, with a view to simplifying it.

"We will support our business with a higher level of leverage, while retaining the benefits of a strong credit rating. This will enable us to enhance value for shareholders through increased capital returns, while maintaining operational and strategic flexibility.

"For 2017, we remain on track to deliver underlying sales growth ahead of our markets, in the 3-5% range. We feel confident that the changes we are announcing today will accelerate the transformation of Unilever and the delivery of sustainable shareholder value over the long term."

The review statement also said that Unilever would increase its cost-cutting efforts, targeting a 20% underlying operating margin, before restructuring, by 2020 as part of its Connecting 4 Growth programme which started last year.

Mark Jones, a food and drink solicitor at Gordons law firm, said: "Unilever's move to separate and sell off its margarine division is not simply about satisfying shareholders who are unhappy about the business rejecting Kraft Heinz's takeover bid. The Kraft bid was motivated by the changing consumer market, and Unilever is now making its own moves to adjust. Packaged food growth has been slowing for some time, and while the margarine business remains very profitable, consumers are moving away from the spread in search of healthier alternatives.

"Unilever has never carried unprofitable brands. One of the reasons it is so successful is because it buys and sell brands at the right time and in this case, parting ways with its margarine division, whilst the going is still good, will enable it to focus on markets which are likely to keep growing in the medium term."

At the time of publishing, the company's share price had risen by 0.4% over the past 24 hours to €46.90 (£40.15).

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