Unilever selling margarine unit to drive 'value' after Kraft approach

Posted April 07, 2017

Anglo-Dutch consumer products giant Unilever PLC (LON:ULVR) (NYSE:UL) today revealed the outcome of the strategic review it launched in February after the shock bid move for the firm by United States food group Kraft Heinz Co (NASDAQ:KHC).

Unilever was unveiling a 3.5-billion-euro restructuring plan as part of a company review launched in the wake of the takeover bid by U.S. food and beverage giant Kraft Heinz in February.

Make it your business.

The group said it would speed up a cost-savings plan, targeting a 20 percent underlying operating margin, before restructuring, by 2020, up from 15.3 percent in 2016.

In addition, Unilever plans to combine its foods and refreshments business in a bid to boost growth.

Unilever raised its cost-savings target to 6 billion euros from 4 billion euros and said the dividend would also increase 12 percent.

The company said that it had achieved modest growth in sales of its spreads in emerging markets a year ago, but that it was not enough to offset continued declines in developed markets, and it would seek to sell or separate the business.

As part of the review, the company found that "our dual-headed. legal structure adds complexity when undertaking such change".

"The Kraft Heinz bid was a massive wake-up call".

Unilever, which sells Dove soap and Hellmann's mayonnaise, will produce 30 percent fewer ads as part of a cost-cutting drive, Chief Financial Officer Graeme Pitkethly said Thursday in a phone interview. The company also said it would seek to buy back 5 billion euros, or about $5.3 billion, in stock.

He said: "As one of our top ten holdings, Unilever is a clear bastion of long-term value creation and we are incredibly pleased that the business has remained independent".

Unilever executives said it still made sense to keep its food business, excluding spreads, although they left the door open for big-ticket deals, by touting how much easier they would be if it ditched the dual listings and headquarters in London and Rotterdam, as a single listing would make it easier to spin off businesses and use equity in a share deal.

Chief executive, Paul Polman, said the measures would build on its existing Connecting 4 Growth programme started previous year.

Unilever's London-listed shares, which had risen to a record 4,088 pence in recent weeks ahead of the announcement, were flat at 3,933p by 0812 GMT.

"It smacks a little of short-termism but we have to see whether the offloading of Spreads and higher gearing pays off as it looks to grow its business in emerging markets, where it generates 57% of sales and where future growth needs to come from".

Paul Polman, chief executive of Unilever, said: "Most of the savings that we will be announcing to progress on our margins will be increased efficiencies in procurement and better returns on investment in marketing".