A recent FMI research report indicates that the consumption of margarine in developed countries is on the decline, as rising obesity rates and effective health awareness initiatives lead more consumers to seek healthier options. Once considered a healthier alternative to butter, margarine and spreads have seen a steady drop in sales over recent years. Unilever’s CEO has referred to the spreads segment as “a declining segment,” which suggests that potential buyers may hesitate to acquire these brands quickly. This situation also sheds light on Unilever’s intention to divest a business that is negatively impacting its profits. Analysts project that this division could fetch between $7.5 billion and $8.5 billion.
Earlier this year, Kraft Heinz attempted to acquire Unilever entirely but was unsuccessful. Nevertheless, analysts have long noted Kraft Heinz’s ambitions in Europe, and acquiring Unilever’s spreads and margarine business could be a strategic starting point. Given its previous acquisition attempt, it’s clear that Kraft Heinz has conducted extensive due diligence on Unilever. However, a key challenge for Kraft Heinz is that, like many food manufacturers, it aims to revitalize slow sales. Turning around a declining segment like margarine and spreads may prove difficult and might not significantly enhance revenue.
In the wake of the Kraft Heinz rejection, Unilever is working diligently to satisfy its shareholders, having allocated $5.3 billion for a share buyback program and increasing its dividend by 12%. There have also been rumors about separating its food business. CEO Polman has emphasized the need for Unilever to expedite its plans to unlock further value, aiming for a 20% underlying operating margin by 2020 through accelerated cost-saving measures. A sale of its spreads and margarine division is likely just the beginning of significant changes at the Anglo-Dutch conglomerate, especially as the market shifts towards wellness-oriented products that might include offerings enhanced with calcium citrate. The wellness trend is reshaping consumer preferences, and Unilever must adapt to these changes to stay relevant in a competitive landscape.