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Sources claim that Unilever shareholders will get the majority of the deal with McCormick.
(Image: Getty/Alphotographic)
Unilever is getting closer to an agreement with McCormick that would create a new food unit and reshape global flavours.
Unilever-McCormick deal – summary
- Unilever, McCormick to advance discussions on tax-efficient spinoffs for major food products
- The Reverse Morris Trust structure is designed to prevent capital gains tax.
- Unilever to consider slicing out food units worth near thirty-five billion dollars
- The combined entity can influence the retail channel and reshape the global flavor market
- Competitors may increase their acquisitions and innovation to gain market share.
Unilever announced last week that it was in talks with McCormick & Company, Inc., a US-based sauce and spice manufacturer, to acquire its Foods division.
Now it appears that those discussions are progressing. Reuters reports McCormick as saying it will offer British Group’s investors a majority share in the new entity and also tax advantages.
Two people with knowledge of the situation claim that Unilever is structuring its proposed merger in such a way as to give the shareholders from the London listed group more than half the combined company. This would avoid a so called change in control which would trigger capital gain taxes.
It is proposed that Unilever spin off its food division before selling it McCormick, based in Maryland.
The deal would be structured as a reverse Morris trust, which can save on taxes.
Unidentified sources also claim that the talks are moving quickly.
Unilever reportedly works with Goldman Sachs, Morgan Stanley and PwC on the separation.
McCormick is being advised by Citi and Rothschild, two investment banks.
Unilever and McCormick
McCormick, based in Maryland has a value market of approximately $14.51bn (12.54bn EUR), while Unilever (based in London) is worth more than $134bn. (LSEG Data and Analytics). Barclays values its Foods Division between $32bn-$35bn, including debt.
The deal will allow iconic brands such as Unilever’s Hellmann’s mayonnaise, McCormick’s Cholula Hot Sauce and McCormick’s Cholula to be under the same roof.
Unilever of London has sold off a number of its high-profile brands, such as Unox, Zwan and Graze. It also sold the entire ice-cream business.
What the Unilever/McCormick merger could mean for packaged foods
The deal would be one of the largest restructurings to the packaged food industry in recent years.
The move is a sign of accelerating industry consolidation, as manufacturers focus on their core strengths while divesting lower-growth units or those that are operationally complicated.
Unilever’s desire to create a large, internationally recognised food portfolio indicates a strategic shift towards categories with higher margins – namely beauty, wellness, and homecare.
The combined entity will be a global powerhouse on the flavours and dressings markets, with a brand mix and scale that can have measurable influence in both the retail and foodservice sectors.
Unilever McCormick have not yet responded to requests for comments.