Unilever is reportedly in the early stages of considering a spin-off of its food division in a further pivot towards health and beauty products.
The consumer goods giant owns a sprawling portfolio of brands across food, beauty and personal care, but is exploring a separation of its food assets, according to Bloomberg.
The deal would reportedly value Unilever’s food brands, which include Marmite and Hellman’s Mayonnaise, at tens of billions of dollars.
It follows the recent spin-out of Magnum and the sale of Graze, as Unilever focuses on its beauty and personal care portfolio, which has helped to drive growth and have higher margins.
Boss Fernando Fernandez recently reiterated plans to focus the business on beauty as sales are hit by ‘subdued’ markets.
While hero brands Dove and Vaseline helped to power growth and offset a decline in food products, Fernandez insisted its food arm remains ‘a very attractive business’.
Spin-off: Unilever is reportedly exploring a separation of its food division
Reports of a deal follow rumours that Unilever was eyeing a sale of its British brands Marmite, Colman’s and Bovril, just nine years after Unilever sold its spreads business.
Unilever has come under pressure for the underperformance of its share price, which has trailed the FTSE 100 over the past five years.
It has gained just over 13 per cent, while the FTSE has climbed 55 per cent over the same period.
Food firms are struggling to drive meaningful growth as cost-of-living concerns weigh on consumers, who are reining in their spending.
Meanwhile, the increasing popularity of weight loss drugs means lower volumes, or customers opting for less calorie-dense products.
Victoria Scholar, head of investment at Interactive Investor, said: ‘A broader move away from food might also appeal to investors given the rise in weight loss drugs that is creating a cloud of uncertainty in the food sector, particularly among unhealthier options, and looks set to reshape consumer demand in a way that is yet to be fully understood.’
Unilever has reportedly not made any final decisions and could keep its current structure or pursue alternatives, Bloomberg said.
Dan Coatsworth, head of markets at AJ Bell, added: ‘Someone taking a long-term view might see Unilever’s food business as a portfolio of cash-generative brands that could yield tidy returns.
‘Unilever knows how to execute a demerger and could repeat the same process for the food arm as it did with the ice cream assets, assuming a buyer with a reasonable offer fails to emerge.
‘Demergers aren’t a last resort. They often lead to greater value generation than under a conglomerate structure.
‘Divisional management are typically free to make more entrepreneurial decisions rather than having a parent company pulling the strings.’
Unilever shares are down 1.6 per cent this morning.
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