Unilever Restructuring Includes Selling Off Spreads and €5bn Share Buyback Program

Violet Tucker
April 8, 2017

Consumer products giant Unilever plans to sell its spreads division and combine its foods and refreshments units as part of a major review of operations prompted by a $143 billion takeover bid by rival Kraft Heinz that fell through in February.

Unilever's London-listed shares, which hit a record 4,088 pence in recent weeks ahead of Thursday's announcement, were up 1.3 percent at 3,989p by 1036 GMT, outperforming the FTSE 100 .FTSE which was down 0.4 percent.

Following the strategic review, the company will merge its foods and refreshments operations, which had a combined 22.5 billion euros in revenue a year ago.

Unilever appears to have won over its critics and shareholders with a series of measures to transform its business in the wake of a failed £115 billion takeover approach from Kraft Heinz. Get twice-daily updates on what the St. Louis business community is talking about.

The firm said it is to accelerate its "Connected 4 Growth" programme and is targeting a 20% underlying operating margin, before restructuring, by 2020.

The Rotterdam-based group is also planning to increase dividends in 2017 by 12 percent, and launch a shares buy-back of some five billion euros ($5.3 billion) by the end of the year.

A majority of Unilever investors polled by analyst Berenstein last month said that they would have supported further talks with Kraft, although the majority of those said they would have sought a 40% bid premium rather than the 18% initially offered.

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Polman said Unilever meant to raise its dividend by 12% for the coming year.

Overall, Unilever said various initiatives-including more efficient marketing spending and supply-chain savings-would allow it to increase cost savings from EUR4 billion to EUR6 billion.

Aside from the "active portfolio management" moves, Unilever also said it plans to combine its Foods and Refreshment into one organisation, to unlock "growth and faster margin progression".

"To fund it, Unilever is borrowing - increasing its net debt from about x1 earnings before nasties to x2 EBITDA".

"Some had speculated Unilever could go to three times to free up even more cash, but it's remaining fairly conservative", said Neil Wilson, senior market analyst at ETX Capital in London. The bidding done by the Kraft Heinz group was an alarm for the Anglo-Dutch company to execute massive decisions to keep the shareholders happy without damaging the margins on the company. "That will generate long-term loyalty better than share buybacks".

- The company will review its dual-headed legal structure "with the objective of achieving greater simplification and strategic flexibility".

"As we evaluated the alternatives for our Spreads business, it was apparent that our dual-headed (NV and PLC) legal structure adds complexity when undertaking such changes".

Other reports by Guamnewswatch

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