Unilever will sell its spreads business, including brands like Flora and Stork, as part of a major structural review prompted by Kraft Heinz’s $143 billion approach.
The Anglo-Dutch company also owns Bertolli and I Can’t Believe it’s Not Butter, which changed its name to I Can’t Believe it’s So Good in February.
It will also instigate a share buy-back programme worth €5 billion and establish a net debt to pre-tax earnings ratio of 2:1, as it attempts to prove to investors that it can succeed as a standalone entity.
Despite having less than half the turnover of Unilever, Kraft Heinz’s audacious bid has caused more ripples for the Anglo-Dutch entity than would have been expected when the $143 billion offer was rejected in February.
As part of its corporate review, announced this morning, Unilever will also look at that ‘dual-headed structure’ – and whether it needs to have two separate legal entities registered in the Netherlands and the UK. “As we evaluated the alternatives for our spreads business, it was apparent that our dual-headed legal structure adds complexity when undertaking such changes,” Unilever said.
It remains unclear whether that means delisting the company in the Netherlands; Unilever’s global headquarters are located in London.
The food giant will also combine its food business with its refreshments division, which includes its beverage and ice cream brands like Ben & Jerry’s and Lipton. The move, it said, would help it “unlock future growth and faster margin progression”.
Unilever CEO Paul Polman said: “With the transformation of Unilever, we have built on a portfolio of strong and growing brands delivered to consumers across the world. We have established a responsible investment-led growth model that is well-equipped with global scale and unrivalled distribution strength in emerging markets. This has resulted in consistent, competitive, profitable and responsible growth and attractive returns for our shareholders. The faster pace of change that we are seeing in our markets and competitive set requires us to continue to set the bar higher. This was the main driver for the implementation of the Connected 4 Growth programme announced last year.
“Our recent review concluded once more that our strategy for long-term value creation through growth and compounding returns on investment is the right one for Unilever and for our shareholders. It also highlighted the opportunity to go faster and further. The progress already made with Connected 4 Growth allows us to now accelerate the programme. This will be further enabled by the next step, which is the establishment of an integrated Foods & Refreshment unit, a leaner and more focussed business that will continue to benefit from our global scale and footprint. This acceleration allows us to unlock sustainable value faster and target an overall underlying operating margin, which excludes restructuring, of 20% by 2020. Progress and performance will be reported on with greater granularity in our financial communication.
“The review has also highlighted the opportunity for accelerated development of our portfolio. 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, and we expect an underlying operating margin improvement of at least 80bps. 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.”
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