- In one of the largest European acquisitions by a buyout firm in 2017, Unilever will sell its margarine and spreads business for $8.03 billion to private equity firm KKR & Co, the company said in a statement.
- The sale, which includes I Can’t Believe It’s Not Butter along with Unilever's other iconic brands of margarine and spreads, is expected to close mid-2018 pending regulatory approval.
- Unilever, which has headquarters in both Britain and the Netherlands, says it will return the cash to shareholders unless the company is presented with an acquisition opportunity that creates more value.
The deal comes after Unilever investors pressured the company to increase profitability following its decision to reject a $143 billion takeover offer from Kraft Heinz earlier this year.
In selling its 145-year old margarine and spreads portfolio, Unilever is not only shedding a historic businesses, but one that has experienced some decline as consumers transition back to butter. In recent years, Americans have consumed about three-and-a-half pounds of margarine a year—less than a third of their consumption in the early 1990’s when margarine and spreads made with vegetable oils were seen as healthier alternatives to butter. Meanwhile, butter sales are expected to increase 8% this year, with retail prices spiking due increased demand and limited supply.
Even as Unilever’s brands, which include Country Crock, Flora and Blue Band, achieved modest growth in 2016 in the company’s emerging markets, it wasn’t enough to offset continued declines in developed markets, putting a drag on profitability.
“In April of this year we set out our 2020 programme to accelerate sustainable value creation. After a long history in Unilever we decided that the future of the spreads business would lie outside the group," Paul Polman, Unilever's CEO, said in a statement. "The announcement ... marks a further step in reshaping and sharpening our portfolio for long term growth."
Unilever has maintained a 34% market share in the global spreads business, likely helped by introducing vegan and organic versions of its classic brands. Despite the unit’s overall drop in sales by 2% in the third quarter, Unilever hands over a unit with an estimated 20% profit margin, a selling point that made the business attractive to several private equity firms.
Johannes Huth, the head of KKR, said in a statement the strength of the portfolio of consumer brands in spreads provides a firm foundation for future growth. The private equity firm said it will continue Unilever’s efforts to source sustainable ingredients for the products.
While once out-of-fashion butter is trendy again, the spreads business isn't going anywhere either. KKR will gain a solid business with strong cash flow, while Unilever sheds a slow-growing business and gets cash it can use to reward shareholders or acquire another business. As is often the case with big companies in the food space, expect more firms to look for ways to unload unloved businesses while bulking up on ones with faster growth.