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Unilever tipped to sell food business for €14bn

By Sarah Hills , 03-Aug-2011
Last updated on 08-Aug-2011 at 13:54 GMT

Analysts at investment bank Liberum Capital said they expect Unilever to sell its food arm, excluding the ice cream and beverage category, for an estimated figure of €14bn.

Any such deal would be used to fund a large acquisition in its home and personal care businesses, according to a Liberum Capital report on why now is the right time to buy Unilever stock.

Authors Pablo Zuanic and Lisa Hau said: “We expect Unilever at some point to implement a large accretive acquisition in the HPC (household and personal care) space and to partly fund it by selling it’s the Food unit (excluding ice cream and beverages) which we estimate can be sold at about one times sales (or €14bn).

“Selling this lower growth component would improve the company’s growth profile but at the same time, a deal in HPC would likely increase the company’s franchise strength in the category (potential targets: parts of Clorox; Colgate; Beiersdorf; and or a cosmetics company).”

FoodNavigator.com contacted Unilever about the report but a spokesman said that they would not comment on speculation.

Unilever’s business units are broken down into four categories: Home Care; Personal Care; Savoury, Dressings & Spreads; and Ice Cream and Beverages. Its food brands include Knorr, Flora, Magnum and Lipton.

Unilever is due to announce its half year results on Thursday. However, in its trading statement for Q1, published in April, it stated that all the sub-categories within savoury, dressings and spreads delivered sales growth on the back of strong innovations and increasing price.

But rising commodity costs, especially in spreads, required higher pricing which led to negative volumes in the quarter.

Underlying sales growth for the category was 2.1%, with volume slightly negative at minus 0.4%.

The Liberum report says that now, one month into the calendar third quarter, commodity pressures have stabilized or eased compared to average second quarter levels. Coffee was down 15%, Barley -11%, Wheat -6%, Soya Oil -3% and Palm Oil -3%. Meanwhile rising retail inflation data shows manufacturers have been able to increase prices.

It adds: “In food, the Unilever food categories are among the ones with the steepest price hikes in Europe; for example, oils and fats in June were up 7.8% in Europe according to Eurostat (the highest increase among the categories for a which inflation data is provided), with a 16% rise in the UK.”

Meanwhile there has been some recent activity in sales and acquisitions.

In July last year, Unilever announced that it had sold its Italian frozen foods business, Findus, for €805m to a company part-owned by Birds Eye Iglo.

Then in December it completed its acquisition of the Sara Lee Personal Care business for €1.275bn.

March this year saw the sale of its consumer tomato products business in Brazil to Cargill for approximately €260m.

Then in May Unilever acquired the beauty and personal care company, Alberto Culver, for $3.7bn (or €2.6bn at current exchange rates).

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