Media Moves

Coverage: Unilever to dump its butter business

April 7, 2017

Posted by Chris Roush

UnileverUnilever announced a major restructuring on Thursday that it would include the sale of its spreads business, overhauling two major divisions, reviewing its dual legal structure and buying back $5.3 billion in stock as it seeks to cut costs and appease investors.

Chad Bray of The New York Times had the news:

The company has faced investor pressure to improve its profitability, particularly in light of the dropped Kraft Heinz deal. Unilever said that it would merge its foods and refreshments operations, which had a combined €22.5 billion in revenue last year.

Mr. Polman said that combining the two segments would lead to a leaner business “that will continue to benefit from our global scale and footprint.”

The spreads business, which includes the margarine brands Country Crock, Flora and I Can’t Believe It’s Not Butter, was merged two years ago with a baking and cooking segment in Unilever’s foods division. The company said that it had achieved modest growth in sales of its spreads in emerging markets last year, but that it was not enough to offset continued declines in developed markets, and it would seek to sell or separate the business.

The spreads business, which had €3 billion in sales last year, does not include Hellmann’s mayonnaise or Marmite.

“After a long history in Unilever, we have decided that the future of the spreads business now lies outside the group,” Mr. Polman said.

Martine Geller of Reuters reports the company wants to generate returns as an independent company:

Some analysts had speculated it would split into two in a dramatic strategy reversal, but executives said the current strategy was working while needing to be speeded up.

“We need to accelerate our plans to unlock further value faster, and this was brought home to us by the events of February,” Chief Executive Paul Polman said.

“There is no doubt that however … opportunistic it (the Kraft approach) was, it did raise expectations,” Polman said. “We are absolutely determined to use it as an opportunity to place Unilever on an even stronger footing.”

Unilever executives said their strategy of long-term steady growth had found support in talks they had held with investors including all of the group’s top 50 shareholders.

GAM fund manager Ali Miremadi, who manages two worldwide equity funds that are 2.5 percent invested in Unilever shares, said the announcement was in line with expectations.

Saabira Chaudhuri of The Wall Street Journal reported that the company wants to boost its operating margin to 20 percent:

The slow-growing spreads unit isn’t just another business for Unilever. The company was formed in 1929 through a merger of British soap business Lever Brothers and the Dutch company Margarine Unie, which dated back to 1872.

Unilever also said Thursday it would combine its foods and refreshment units into one organization to boost growth and cut costs, and look to increase its strategic flexibility for further portfolio changes by reviewing its duel-headed legal structure.

Overall, Unilever said various initiatives–including more efficient marketing spend and supply-chain savings–would allow it to increase cost savings from EUR4 billion to EUR6 billion.

Unilever said it would launch a EUR5 billion share-buyback program this year and raise its dividend by 12%, reflecting greater confidence in its outlook for profit growth.

The company is aiming for a 20% operating margin by 2020, compared with 2016’s 16.4%.

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