Unilever Plc shares slid 3.5% on Wednesday as investors reacted to media reports that the company is in early-stage talks about separating its food business. The potential move has raised questions among market participants about whether another large corporate restructure could distract management, particularly so soon after the company completed the demerger of its ice cream arm.
Bloomberg News reported on Tuesday that Unilever was weighing a separation of its food assets, citing people familiar with the matter. The company did not provide comment when asked. The report followed an extended process that culminated in the December listing of the ice cream business as The Magnum Ice Cream Company - a step that came nearly two years after that spin-off was first announced.
Investors and analysts said the timing is sensitive. "(CEO Fernando Fernandez) needs another year under his belt before he looks at splitting off food; geopolitical issues consumers are facing also need to calm down," Barclays analyst Warren Ackerman said. Fernandez has been in the top role for just over a year, having taken over after the ouster of his predecessor, Hein Schumacher. Sources told Reuters at the time of that leadership change that the board expected Fernandez to accelerate efforts to streamline Unilever's wide-ranging portfolio.
Shares of other consumer goods companies also moved lower on Wednesday, with rival firms including Reckitt and Nestle among those that recorded declines.
Unilever's food division, which includes brands such as Hellmann's sauces, Knorr bouillon cubes and Marmite spreads, generated an operating profit of 2.9 billion euros last year. Barclays has put an indicative valuation on the food business at as much as 10 times EBITDA, which equates to roughly 30 billion euros by the bank's calculation.
Some portfolio managers warned that spinning out the food unit would not be straightforward. "Demerging food is not straightforward as there are significant tax costs and lower economies of scale in emerging markets," said Tineke Frikkee, a portfolio manager at W1M. She added that a separated group might seek acquisitions to replace sales or profit and that previous debates over over-the-counter healthcare businesses could resurface.
For years, certain investors have urged Unilever to divest its lower-growth food franchises. Underlying sales in the food business rose by 2.5% last year, a pace that has weighed on the company’s overall growth profile. By contrast, Unilever's beauty and wellbeing segment, which produces Dove soap and Vaseline moisturisers, achieved underlying sales growth of 4.3% during the same period.
Although the food division typically posts higher margins than the beauty and wellbeing unit, it has not met Unilever's short-term target of growing underlying sales by 4-6% per year. The issue of demand dynamics in packaged food markets was highlighted by Ackerman, who pointed to broader trends affecting the sector. "This is a time of GLP-1, anti-packaged food - the U.S. food industry has been anaemic for years," he said, noting that household and personal care brands can more readily justify premium price points by emphasizing perceived scientific benefits over cheaper private-label alternatives.
The company's strategic shifts in recent years followed the emergence of activist investor interest. Billionaire activist Nelson Peltz disclosed a stake in Unilever in 2022, and the subsequent restructuring has coincided with two chief executive departures and a sell-off of several smaller food brands, including The Vegetarian Butcher, in addition to the ice cream demerger.
Market participants will be watching closely for any formal announcements or additional detail from Unilever about the reported early-stage review. For now, the suggestion of another large-scale corporate action has been enough to prompt a measurable market reaction and renewed debate over the optimal shape of the group.
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