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Unilever butters up investors with margarines sell-off

International Business
Fri, 07 Apr 2017
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The Hague: Anglo-Dutch food and consumer products giant Unilever said Thursday it is selling off its margarine division as it seeks to appease investors after spurning a takeover bid from US rival Kraft Heinz.

The Rotterdam-based group is also planning to increase dividends in 2017 by 12 percent, and launch a shares buy-back of some five billion euros ($5.3 billion) by the end of the year.

Unilever was unveiling a 3.5-billion-euro restructuring plan as part of a company review launched in the wake of the takeover bid by US food and beverage giant Kraft Heinz in February.

"After a long history in Unilever, we have decided that the future of the spreads business now lies outside the group," chief executive Paul Polman said in a statement.

Analysts said the Kraft Heinz bid had been a "massive wake-up call" for the company.

"Unilever realised it needed to do more for shareholders, but it also has to improve margins," said analyst Neil Wilson at EXT Capital.

One poll showed only half of the company's shareholders had agreed with Polman's flat refusal to even consider Kraft's offer.

With the moves announced on Thursday, Unilever "wants to make sure shareholders are not tempted by another bid and is throwing cash at the problem," Wilson added, warning it "smacks a little of short-termism."

Ironically, Kraft could now be one of the companies interested in taking on parts of the margarines and spreads business, which includes such household names as Flora, and Stork along with Blue Band and Rama.

They were formed into a separate Unilever unit in 2015, but had remained "challenged in developed markets and we have now taken the decision to launch a process to either sell or de-merge spreads," the company said.

The latest moves are aimed at making the company more attractive to investors and forestall any further unwelcome advances from rivals.

Unilever snubbed Kraft's offer which would have valued it at a whopping $143 billion, saying it "fundamentally undervalued" the group.

The merger would have married the maker of Kraft cheese and Heinz ketchup with its European counterpart, whose products include Q-tips, Hellmann's mayonnaise and Ben & Jerry's ice cream. Unilever also has an extensive homecare and personal care section, including such brands as Dove.

Global food companies have been struggling with anaemic economic growth in many key markets amid changing and health-conscious lifestyles.

Polman said Unilever was merging food and refreshments into one unit to become "a leaner, more focused business... better able to compete."

"The reality of 21st century life is that people are more likely to grab breakfast 'on the go' rather than sit around the table with a few slices of toast," said George Salmon, equity analyst at Hargreaves Lansdown.

While the sale of the spreads unit may "grab the headlines... the big news for shareholders is the more aggressive plans for increasing profitability," he added.

Polman said that Unilever was targeting an underlying operating margin of 20 percent by 2020, up from 16.4 percent last year, and is on track to see sales growth of three-to-five percent this year, and in the next few years to come.

Unilever also intends to look at changing its historic status as a dual-listed company in two countries.

If it decides to spin-off the spreads business, then it would be easier to do so with a simplified structure, Polman told reporters on a conference call.

Without anticipating the outcome of such a review, Polman argued that Unilever also needed to be able to act quickly as the speed of future opportunities accelerated in the sector.

Unilever is listed in both London and on the Amsterdam AEX, where after initially dipping share prices were up by early afternoon Thursday by 0.71 percent at 46.90 euros a share.