Unilever shareholders to get majority stake in potential McCormick food deal, sources say

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By Abigail Summerville, Andres Gonzalez and Alexander Marrow

NEW YORK/LONDON March 27 (Reuters) – A proposed combination of Unilever’s food business with U.S. spice maker McCormick would offer the British group’s shareholders a majority stake in the new entity and tax benefits, two people familiar with the matter told Reuters.

Unilever, the maker of Hellmann’s mayonnaise and Knorr stock cubes and one of the world’s largest personal goods companies, said last week it was in talks with McCormick after receiving an offer for its food division from the smaller group.

Cholula hot sauce maker McCormick confirmed the talks, without disclosing financial details, which pave the way for the biggest ever shake-up at Unilever, which has a $131 billion stock market value.

Unilever and McCormick, which both declined to comment, are structuring the proposed deal in a way that would give shareholders in the London-listed group more than 50% of the combined company, while avoiding a so-called change in control that would trigger capital gains taxes, the people said, asking not to be identified because the talks are private.

The proposed deal, the biggest for Fernando Fernández since he became CEO last year, would involve spinning off Unilever’s food business before selling it to Maryland-based McCormick. It would be arranged like a so-called reverse Morris trust (RMT), which saves on taxes, the two people said.

Talks are progressing quickly, the sources and a third source said.

Although unclear how big a stake Unilever shareholders would receive, similarly structured consumer goods deals have left the seller’s shareholders with 50% to 60% stakes in the new entity.

In 2021, for example, International Flavors & Fragrances acquired DuPont’s Nutrition & Biosciences business in an RMT deal valuing the combined company at $45.4 billion and giving DuPont shareholders 55.4% of the new group.

In the 2000s, J.M. Smucker bought Jif and Crisco, and later Folgers, from Procter & Gamble in all-stock RMT deals that gave P&G investors roughly 53% stakes in Smucker.

Unilever’s food unit is valued at between 28 billion euros ($32 billion) and 31 billion euros, including debt, Barclays estimates. McCormick’s enterprise value is nearly $18 billion, including around $4 billion of net debt, LSEG data shows.

This is typical of RMT structures, where the effective buyer is significantly smaller than the seller.

MCCORMICK ADMIRED FOOD UNIT FOR YEARS

Unilever has been working with Goldman Sachs, two people with knowledge of the matter said. One added that Morgan Stanley and PwC are also advising on the potential separation.

Meanwhile, investment banks Citi and Rothschild are advising McCormick, two of the people said.

Morgan Stanley, Goldman and Citi declined to comment. PwC and Rothschild did not immediately respond to requests for comment.

McCormick has been watching Unilever’s food business for years, admiring its global reach and seeing opportunities to grow under-appreciated brands in the sprawling conglomerate, one of the people and two others familiar with the company said.

Spice maker McCormick has been disciplined on M&A, giving it flexibility to move fast when this potential deal was possible. It had tried to buy Duke’s mayonnaise maker Sauer Brands and Japanese barbecue sauce brand Bachan’s in recent years, but lost out to higher bidders, the people said.

In 2017 it bought Reckitt Benckiser’s food division, which included Frank’s RedHot hot sauce and French’s mustard.

Unilever spent more than a year separating out its ice cream business, which was listed as The Magnum Ice Cream Company in December. 

It retained a 19.9% stake in the business after the deal, which also had some tax benefits, such as reduced chargeable gains for shareholders when part of their holdings were converted into Magnum stock.  

(Reporting by Abigail Summerville in New York and Andres Gonzales, Amy-Jo Crowley, Alexander Marrow and Richa Naidu in London; Editing by Echo Wang, Dawn Kopecki, Anousha Sakoui and Alexander Smith)