By Richa Naidu and Yadarisa Shabong
LONDON, March 31 (Reuters) – Unilever is in advanced talks to merge its food business with spice maker McCormick, it said on Tuesday, in a potential deal that could create a $60 billion company.
If completed, the transaction would be structured as a so-called Reverse Morris Trust (RMT), which offers tax benefits. Unilever would spin off the food division and then merge it with the Cholula hot sauce owner, with Unilever and its shareholders expected to retain a 65% stake in the combined entity, Unilever said.
Analysts at Barclays valued Unilever’s food business at between 28 billion euros ($32.10 billion) and 31 billion euros, including debt. That, combined with McCormick’s $14.2 billion market capitalization and what Unilever said would be a $15.7 billion cash component could value the new combined company at over $60 billion.
The potential deal marks CEO Fernando Fernandez’ biggest gambit yet since taking the helm in March 2025 and comes after he completed the spin-off last year of Unilever’s multi-billion euro ice cream business, home to Ben & Jerry’s and Magnum.
“There is logic in a disposal of the foods business where volumes have been muted over the past years,” Harsharan Mann, a portfolio manager at Unilever shareholder Aviva Investors, said in comments sent to Reuters. The RMT model is “sensible” given tax issues that had plagued similar deals in recent years, he said.
“Global peers such as Procter & Gamble have successfully used this structure in prior years for disposals of non-core businesses in a tax-free structure.”
Shares in Unilever, which have fallen more than 6% so far this year, were up 0.9% in early trade on Tuesday. McCormick shares rose 3.9% in pre-market New York trade.
DEAL COULD COME AS EARLY AS TUESDAY
Unilever’s sprawling consumer brands’ empire ranges from Dove soaps to Hellmann’s mayonnaise, Knorr stock cubes, Cif cleaning products and Axe deodorant among others.
Though Unilever’s food unit is a high-margin business, sales growth has lagged the company’s personal goods and beauty businesses and weighed on its ambition to increase overall group sales by 4%-6% in the near term.
Unilever said in a statement that an agreement with McCormick could be close, though cautioned it was not a done deal. The proposed combination of its foods business would exclude certain assets, including its operations in India, it added.
“Work remains ongoing to agree and finalise a transaction and it is possible that an agreement could be concluded today, although there can be no certainty that a transaction will be agreed,” it said.
Unilever has been under investor pressure to shed food brands for years, increasingly so after it was revealed in 2022 that billionaire activist-shareholder Nelson Peltz had built a stake in the firm. Peltz has been linked to the departure of two CEOs, Alan Jope and Hein Schumacher, who investors felt were not streamlining Unilever’s portfolio fast enough.
The deal with McCormick comes on top of an ongoing cost-cutting programme Unilever has had in place since 2024, meant to save around 800 million euros in costs over the next three years.
“Evaluating the transaction will necessitate more details on synergies and how the company will deal with stranded costs, with news today that it has implemented a global hiring freeze amid the war impact, which may affect sentiment on current trading,” JPMorgan analysts wrote in a note.
Reuters reported exclusively late on Monday that Unilever had implemented a global hiring freeze “at all levels” that will last at least three months, citing the effects of the widening conflict in the Middle East.
SHIFT FROM MARGARINE TO HEALTH AND BEAUTY
Unilever traces its roots in the food sector to 1860, when one of its Dutch founding families began building up a business in the butter trade. Unilever itself was created in 1929 when Margarine Unie and Lever Brothers joined in what was at the time one of the biggest industrial mergers ever in Europe.
The company’s food business accounted for just over a quarter of overall annual sales of 50.5 billion euros last year, and a big portion of its 96,000 employees around the world.
Unilever has spent most of the last century snapping up food and beverage brands from Marmite to Colman’s and Horlick’s – until the past decade when health-conscious shoppers started shying away from packaged food in favour of fresh groceries.
The rise of GLP-1 weight loss drugs in recent years has further eroded demand and investors’ faith in packaged food, especially due to stiff competition from cheaper private label brands that make similar products.
Over the past year, Unilever has divested several non-core food assets, including snack brand Graze and plant-based meat brand The Vegetarian Butcher.
“The direction of travel makes sense, for Unilever to focus on higher growth categories,” said Tineke Frikkee, a portfolio manager at W1M, a Unilever investor.
“But at this stage we need to see the details of any deal, including all advantages and disadvantages, to assess if sufficient value is being created for shareholders in the medium to long term.”
($1 = 0.8724 euros)
(Reporting by Yadarisa Shabong, Prerna Bedi in Bengaluru and Richa Naidu in London; Editing by Sherry Jacob-Phillips and Susan Fenton)
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