Unilever divests beleaguered bakery ingredient margarine division

By Gill Hyslop contact

- Last updated on GMT

Unilever is exchanging its margarine and spreads division for a wholly-owned share of its South African division. Pic: ©GettyImages/JoLin
Unilever is exchanging its margarine and spreads division for a wholly-owned share of its South African division. Pic: ©GettyImages/JoLin
Unilever has signed an R11.9bn ($900m) deal to take full control of its South African subsidiary from Remgro in exchange for its R7bn ($385m) southern African spreads business and R4.9bn ($371m) in cash.

Unilever has taken its long-awaited first step to discard it shrinking margarine business in South Africa, Botswana, Lesotho, Namibia and Swaziland.

It has agreed to exchange it with Remgro 25.7% shareholding in Unilever South Africa.

Remgro is an investment group partly owned by Johann Rupert, chairman of luxury group Richemont.

The move follows a failed $143bn takeover bid by Kraft-Heinz of Unilever earlier this year.

Buttering its bread

Analyst and media speculations are rife that Archer Daniels Midland, as well as private equity consortiums including Clayton Dubilier & Rice and Bain Capital, Blackstone and CVC could table bids for the division.

However, Unilever has said it could instigate a share buy-back program worth €5bn ($4.43bn) if it does not receive high enough offers and is analyzing its complicated dual-structure in London and Rotterdam, which could pave the way to broader restructuring by the company.

The Anglo-Dutch company’s spreads and margarine business – including brands like Stork, Rama, Flora, Rondo and Bertolli – fetches around €3bn ($2.66bn) in annual sales, but has been steadily declining for years, constrained by a recession, 27% unemployment and weak growth prospects in the region.

Consumers, too, have been moving away from margarine.

According to Pinar Hosafci, food analyst at market Euromonitor International,​ it is no secret that consumers have grown sceptical of health claims in spreads, and are returning to butter as they look for more natural and wholesome alternatives in their diets.

“The contraction of the spreads market has obviously impacted Unilever’s top line revenue, which – as the world’s largest producer of margarine – have been suffering from this growing consumer backlash for a number of years now,”​ she said.

Spread too thin

In April, Unilever reported a 2.2% sales growth across food and refreshments, including margarine and spreads. Without this division, this figure showed a 3.5% sales growth.

However, Remgro believes these products still have good growth prospects.

“While the investment has been a profitable one for Remgro, its inability to shape the strategic direction of the Unilever SA business has led Remgro to conclude that it will create more value through full ownership and control of the spreads business,” ​the company said in a statement.

The transaction is expected to be finalized in the first quarter of 2018.

Unilever’s spread

The global margarine and spreads market was valued at $14.2bn in 2017, according to Euromonitor, with the Unilever Group commanding the largest market share of 32.4%, ahead of US agribusiness and food group Bunge (5.6%) and Brazil’s Brf Brasil Foods (2.9%).

Unilever’s brands have such a massive scale, in fact, that the word ‘margarine’ is synonymous with brands like Becel, Rama and Flora in several markets.

In the US and the UK, two of the world’s biggest margarine markets with sales of $1.68bn and $613m, respectively, Unilever has more than a 50% market share.

“Unilever’s undeniable brand equity will be of advantage to any potential suitor and so is the profitability of the business,” ​said Hosafci, noting spreads account for 4% of Unilever’s total revenue and have an 8% share of the company’s profits.

Related topics: Ingredients, Bread, Cakes & Pastries

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