Unilever likely to sell low-margin food business, claims Fitch Ratings

15-Nov-2011 - Last updated on 16-Nov-2011 at 09:14 GMT

Unilever is likely to sell its low-margin food business to fund further acquisitions on the personal care side, particularly in the emerging markets, claims Fitch Ratings in a recent commentary note.

The note follows recent media reports that have speculated on whether the Anglo/Dutch food and personal care giant is going to divest of its condiments division. Last week, The Financial Times cited a source close to the negotiations as saying that Unilever has been consulting with banks in a bid to reduce its food portfolio.

“We believe Unilever will focus its disposal efforts on its savoury, dressings and spreads business, where the potential for growth is weakest and where the company has little ability to add value through innovations in recipes or packaging, especially in the developed markets,” said the ratings agency.

When asked by this publication to confirm or deny the speculation, a spokesperson for Unilever declined to comment.

Recent acquisitions

Pablo Mazzini, senior director, corporate EMEA at Fitch Ratings, told FoodNavigator.com that the divesture of the low-value dressing, cooking oils and spreads business would not be a massive surprise, given that Unilever has recently sold its tomato products business in Brazil to Cargill, has also divested its frozen food division.

Moreover, the latest acquisitions by the Anglo/Dutch group, he points out, have been focused on expanding the personal care side of its business, with it acquiring Alberto Culver in May this year and Sara Lee’s personal care and laundry business in 2010.

“We are not changing or confirming our rating of Unilever whatsoever,” stressed Mazzini. “Our commentary note is simply a reaction to ongoing speculation about the company’s growth strategy.”

Condiments volumes fall

In Q3, 2011 underlying volumes in the savoury, dressings and spreads unit, which owns brands including Hellmann's and Knorr, fell by 1% worldwide compared with a 6.2% increase in its personal care division.

Unilever does not break those figures down by region, but volumes across all divisions fell 2.9% in Western Europe, highlighting the reliance on emerging markets for growth, reports Fitch.

Shedding global brands

But Mazzini notes that selling global brands such as Hellmann’s Mayonnaise has it challenges.

“It is often easier for a multi-national to divest of regional brands. But despite the category being a low-value one, Hellmann’s is still viewed as a generative cash cow that can deliver value for a buyer,” he commented.

The analyst reckons Cargill or Bunge, with their edible oil divisions, could be potential bidders for Unilever’s condiments business.