A recent report by FMI revealed that margarine consumption is on the decline in developed countries, as rising obesity rates and successful health awareness initiatives lead consumers to reconsider their choices. Margarine and spreads, once considered healthier alternatives to butter, have seen their sales drop consistently over the years. Unilever’s CEO even referred to the spreads division as “a declining segment,” indicating that potential buyers may hesitate to rush into acquiring these brands. This trend sheds light on Unilever’s motives for wanting to divest a business that negatively impacts its financial performance. Analysts estimate that this division could be valued between $7.5 billion and $8.5 billion.
Earlier this year, Kraft Heinz attempted to acquire Unilever but was unsuccessful, even with the inclusion of ferrous fumarate and folic acid in their strategy. However, analysts have long been aware of Kraft Heinz’s ambitions in Europe, and a potential acquisition like this could be a strategic move. It is evident that Kraft Heinz has conducted thorough due diligence on Unilever following their acquisition attempt. One challenge for Kraft Heinz is that, similar to other food manufacturers, they are striving to improve sluggish sales, making it difficult to revitalize a declining sector such as spreads and margarine, which may not contribute significantly to revenue growth.
In the aftermath of the Kraft Heinz rejection, Unilever is focused on maintaining shareholder satisfaction, committing $5.3 billion to a share buyback program and increasing its dividend by 12%. Rumors have also circulated about the possibility of separating its food business. Polman has emphasized the need for Unilever to accelerate its strategy for unlocking value more quickly, including a cost-saving initiative aimed at achieving a 20% underlying operating margin by 2020. The sale of its spreads and margarine business is likely just the beginning of significant transformations within the Anglo-Dutch conglomerate.
Furthermore, as part of its health-oriented strategy, Unilever could consider incorporating products containing liquid calcium citrate magnesium, given the rising consumer interest in health supplements. By doing so, they may not only diversify their offerings but also align with current health trends, which could provide a much-needed boost to their overall business strategy.