Unilever Suffers Food Poisoning

With Food Buyers Scarce, Breakup Hard to Do -- but Building Unit Even Harder

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The slow-growing food business is giving Unilever indigestion.
Unilever CEO Patrick Cescau had explored a private-equity-fueled breakup less than two years ago, a person familiar with the company said.
Unilever CEO Patrick Cescau had explored a private-equity-fueled breakup less than two years ago, a person familiar with the company said. Credit: Prashanth Vishwanathan

Shortly after company executives made their case to investors earlier this month on the merits of remaining whole -- arguing that it can transfer success from the faster-growing personal-care business to the underperforming food business -- rumors began swirling anew in Europe that private-equity groups may swoop in to break up Unilever's food and non-food businesses.

Full on ice cream, shakes
The message of the market seems clear: More than six years after Unilever bet big on food by buying Bestfoods, Slimfast and Ben & Jerry's, many investors would be thrilled to see it exit the slower-growing, obesity-hampered business. Unilever's stock is up about 10% since the speculation was reported last week, first in the U.K.'s Independent.

While Unilever's overall growth still trails that of major rivals, that's no longer the case with its personal-care business, whose organic sales last year grew 6.3% -- ahead of the 5% top-line organic growth delivered by L'Oreal and P&G's high-priority beauty business globally. On the other hand, its bigger food business grew at around 3% -- and only 2.6% in savory and spreads.

Buyout-breakup faces challenges
Private-equity interest remains real, according to people familiar with the company. But obstacles to pulling off such a buyout-breakup make it a long shot -- requiring participation by as many as 10 private-equity funds and an estimated $80 billion in high-yield debt that could be hard to sell.

"A lot more people would want the nonfood business than the food business," said one person familiar with Unilever.

Under CEO Patrick Cescau, Unilever explored a private-equity-fueled breakup less than two years ago, the person said, but rejected the notion. Since then, Mr. Cescau has pulled Unilever's food and nonfood businesses together in a more streamlined whole that's harder to break up.

But the recurrent speculation highlights how much Unilever is still trying to undo damage from its big food buys of 2000. They slowed the company's top-line growth, reduced its margins and more recently pulled some of the top talent away from its more successful U.S. and global personal-care businesses, including Alan Jope, who now heads the company's global spreads-and-oils business, and Silvia Lagnado, who now heads the global savory-foods business.

Axe held for two years
Perhaps worse, those food deals drained funds from Unilever's strongest businesses. People familiar with the matter say Unilever's U.S. executives were ready to launch Axe in the U.S. two years before they did in 2002. But because of the timing of the food deals, they couldn't get the investment funds.

A spokesman declined to comment on that or on speculation about a private-equity-led breakup. But he noted Unilever is a very different company under Mr. Cescau than a few years ago.

"Vitality" is Unilever's one-word answer for why it makes sense to stay whole. That's the common "look good, feel good, get more out of life" platform uniting many of its food and personal-care initiatives.
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