Unilever-Bestfoods deal poses synergy questions

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The Unilever and Bestfoods merger, creating a $53.6 billion food behemoth, is intended to drive down costs by building marketing synergies and eliminating product duplication. The question now is how that will be accomplished.

Certainly, Unilever's final offer to purchase the $8.6 billion Bestfoods for a whopping $20.4 billion signals its confidence that the brands it's buying will fit with its stated strategy to build a winnowed number of 400 brands into global powerhouses. But some industry observers were skeptical that the combination of Bestfoods brands such as Knorr, Hellmann's, Skippy and Entenmann's will meld seamlessly with Unilever's Lipton, Ragu and Ben & Jerry's brands -- let alone with Calvin Klein or Mentadent.


"There will be some synergies if some of the businesses are combined, but there's not a lot of product overlap," said Bill Leach, analyst at DLJ Securities. "Bestfoods has a very fragmented portfolio with some brands like Knorr and Hellmann's that are sold globally, but certainly not a `global brand' like Coke," he said. Mr. Leach furthermore saw the union as more of a European merger because only 30% of Bestfoods' profit comes from the U.S.

Analysts specifically pointed to the Bestfoods Baking Co. unit, which includes brands such as Entenmann's, Thomas' English Muffins, Boboli and Oroweat bread, as an unlikely fit with Unilever's portfolio. That theory seemed furthered by the statement issued by the two companies, which outlined a plan to have "leading brand positions in key product categories such as culinary products, spreads, tea, ice cream and frozen food."


The potential sell-off of the baking business would most affect Bates USA, New York, which handles those top Bestfoods Baking brands as well as second-tier entries such as Arnold, Brownberry and Friehofer's, on which Bestfoods has spent little in terms of measured media.

BBDO Worldwide, New York, also stands to lose its Bestfoods brands, which include Skippy, Hellmann's and Knorr, if Unilever decides to fold them into its roster of core agencies. Unilever's agencies include McCann-Erickson Worldwide, Ogilvy & Mather and J. Walter Thompson Co.

Overall, however, marketing spending on food brands in the newly merged company is likely to rise, wherever the accounts may land, as Unilever has pledged to increase spending against its chosen few by $1.6 billion. Bestfoods last year also raised marketing spending $20 million, to $996 million, to buoy its worldwide core businesses. In the U.S., however, Bestfoods lowered its spending in measured media from $70.8 million in 1998 to $47.4 million in 1999, according to Competitive Media Reporting.

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