Unilever Spreads Split Boosts Chance of Exit as Shares Gain

By Matthew Boyle and Paul Jarvis

Unilever (UNA) will split its U.S. and European spreads operations into a standalone unit, a first step toward a possible exit from a struggling business that the company has failed to turn around over the past two years.
The new entity, including brands such as Flora and I Can’t Believe It’s Not Butter, will be up and running by mid-2015, Unilever Chief Financial Officer Jean-Marc Huet said today at an investor seminar in London. The unit’s sales account for about 5 percent, or 2.5 billion euros ($3.1 billion), of Unilever’s total revenue.
A declining market for margarine and price deflation have led sales to drop for two years at the spreads business, all of which is valued by analysts at
between 6 billion euros ($7.4 billion) and 10 billion euros. By announcing the split, Unilever spurred speculation about a possible exit, even though the company said it doesn’t plan a sale or spinoff, sending the shares up as much as 3.5 percent.
“This is long overdue,” said Andrew Wood, an analyst at Sanford C. Bernstein, who estimates that the parts being separated are worth as much as 4.2 billion euros. “Hopefully it’s a forerunner to the eventual sale or spin of the business, but it is clearly no longer part of the core future of Unilever, which is good news.”

Photographer: Chris Ratcliffe/Bloomberg News

A man spreads Flora margarine on a slice of toast in London. A declining market for... Read More

Under Chief Executive Officer Paul Polman, Unilever has focused on its health and beauty business, while selling slower-growth food brands, mainly in the U.S. The company in May agreed to sell its Ragu and Bertolli pasta sauce business to Japanese food maker Mizkan Group for about $2.15 billion.

More Freedom

Unilever shares were up 2 percent at 33.56 euros as of 12:04 p.m. in Amsterdam trading.
The separated spreads unit will become known as the Baking, Cooking and Spreading Company and will have a dedicated management team and its own financial statements. It will have more focus and will be faster as it gains more freedom to take “necessary decisions,” Unilever said in the slides.
“This is an important part of our portfolio and heritage but this will never ever be a barrier to take determined action,” Huet said at today’s seminar. “We are now taking the next step in making margarines more competitive.”
After years of positioning butter as the enemy of margarine, Unilever last year added butter to some of its spread brands like Rama. The move came amid a comeback by butter, lifted by a consumer embrace of all things natural. Per-capita butter consumption hit a 44-year high in 2012, according to U.S. government data, while margarine is at a 70-year low.

Country Crock

With brands including Country Crock and Stork, London- and Rotterdam-based Unilever is the world’s leading maker of spreads with more than 30 percent of the market, according to researcher Euromonitor.
The company’s share of the U.S. market for butter and margarine declined to 18.6 percent in the four weeks ended Nov. 22, according to Nielsen data cited in a Bernstein report today. That’s a three percentage point drop from last year.
The entire spreads unit represents about 7 percent of Unilever’s total revenue, or 27 percent of its food division’s 13.4 billion euros of sales, according to the company.