Unilever's £7bn Food Sale: Shareholders Left Out

Unilever's strategic move to offload its food division to US ingredients group McCormick, aiming to become a pure-play health, well-being, and beauty company, is encountering substantial challenges.

The transaction has already resulted in a significant £7 billion decline in Unilever's share price. The deal's complexity is amplified by the exclusion of certain territories, including Hindustan Unilever and operations in Nepal and Portugal. Investors in Unilever will ultimately hold a 55% stake in the divested food business, to be managed by McCormick, but they are being denied a vote on the $45 billion valuation of brands like Hellmann's and Knorr.

Further complicating matters, Unilever is not obligated to provide shareholders with a circular detailing the transaction's specifics, such as adviser fees or banking arrangements. This contrasts sharply with McCormick's US Securities & Exchange Commission obligations, which mandate a shareholder vote and extensive documentation. The technical structure, a Reverse Morris Trust, allows Unilever to avoid significant tax liabilities by retaining a 50.1% stake in the divested entity, a strategy financial consultants sometimes caution against solely for tax reasons.

Advisers are attempting to position the combination of McCormick's ingredients with Unilever's condiments as unique, yet this enthusiasm is questioned given Unilever's rationale for exiting food—its slower growth compared to health and beauty brands. Chief Executive Fernando Fernandez appears to be accelerating these changes, having overseen the departure of two previous CEOs within two years. Fernandez is actively acquiring bolt-on enterprises, such as the US vitamins brand Gruns.

Major shareholders, including Blackrock with 8.5% and potentially Fundsmith, have expressed past criticism of Unilever and might seek more clarity on the deal's underpinnings and the timeline for divesting the food stake, which is unlikely before 2028. The Leverhulme Trust and private investors also deserve a voice in this significant corporate maneuver. The lack of shareholder democracy is reportedly attributed to the Financial Conduct Authority's drive for more competitive UK equity markets, leading to a situation where a major transaction occurs with minimal transparency.