Unilever's spreads arm attracts PE suitors

Private equity firms Blackstone and CVC Capital Partners have reportedly approached Unilever over a potential offer for the unit.

According to Sky News, the PE group’s sought permission from Unilever to launch a joint bid on Monday. Citing sources, the report suggested that two Blackstone executives and industry veterans – former Marks and Spencer boss Marc Holland and ex-Unilever chief operating officer Harish Manwani – will be involved in the consortium’s offer.

Blackstone and CVC, who are currently cooperating in a bid to buyout London-listed Paysafe, declined to comment on their approach to Unilever.

This bid is believed to come up against interest from another private equity consortium, Clayton Dubilier & Rice and Bain Capital. Further proposals are expected to emerge in the coming weeks, with the likes of KKR also said to be interested in the business.

Unilever’s move to split from spreads

Unilever signaled in April that it intends to exit the spreads category as part of plans to “transform” the business and increase returns to shareholders.

The decision followed a strategy review triggered in the wake of Unilever’s rejection of a €118.4bn ($140bn) takeover approach from Kraft Heinz. The Anglo-Dutch consumer goods giant had nevertheless faced persistent calls from the investment community over a number of years to offload the business, which is struggling to deliver growth in a depressed spreads category.

Hopes of a disposal were raised in 2014 when the company carved out spreads from the wider food division into a standalone unit, the Baking Spreading & Cooking Company.

At the time, Unilever suggested this would enable it to focus on turning around the top-line performance of the business. Unilever’s spreads brands responded to the sales drag with a "new emphasis on cooking and baking​", launching 22 blended spreads that combine vegetable oil and butter in that year alone. However, results did not see significant improvement. During the first six months of this year, to 30 June, the drag presented by Unilever’s spreads division trimmed 0.4% off underlying sales growth, which stood at 3% for the group.

Unilever is considering both a sale or possible flotation, if offers fail to management’s valuation expectations. Announcing the group’s first-half results earlier this month, CEO Paul Polman said preparations for an auction were “well underway​”.

Industry insiders believe that the sale is more likely to attract private equity interest than appeal to a strategic buyer.

Unilever is by far the largest player in the global spreads category, accounting for about 16% of global sales, according to Investec. This places the group well ahead of its nearest branded rival, BRF, which accounts for 4% of sales, mainly in Latin America. With BRF’s international expansion ambitions currently focused on its core protein business, it seems unlikely that the Brazilian group would be tempted by Unilever’s spreads division.