Investors’ negative knee-jerk reaction to Unilever’s proposal to sell the bulk of its foods business to McCormick & Co has executives from each company extolling the virtues of the other and reframing the potential deal as a strategic step-change rather than a simple exit.
Share prices for both businesses fell sharply within a day of Unilever announcing it was in “advanced discussions” with McCormick to combine its food business, which includes iconic brands Hellmann’s and Knorr, with McCormick to create a combined portfolio with revenues of $20 billion based on fiscal year 2025 data.
Even though the deal is not finalized, Unilever’s share price plummeted more than 7% from $59.98 on March 30, a day before it announced it was in talks with McCormick, to $55.45 on April 2. McCormick’s share fell even more sharply – dropping 9% in the same period from $53.72 to $48.85.
The negative market response likely is due more to the poor track record of mega-mergers in food and current pressure on industry valuations rather than the specifics of the deal’s structure as a Reverse Morris Trust, which could allow Unilever to spin off the business in a more tax-efficient manner than an outright sale. Under this structure, Unilever shareholders would retain a majority stake in the combined entity, which the company says gives investors flexibility to choose their risk level.
Against the backdrop of a multi-day sell-off, executives from both companies began working the circuit on April 8 to reframe the deal as a win – with Unilever CEO Fernando Fernandez sitting down for a fireside chat with Warren Ackerman, head of European consumer staples at Barclays, and McCormick CEO Brendan Foley talking to major media outlets, including CNBC and Bloomberg, on April 9.
Why a Unilever-McCormick deal could sidestep traditional pitfalls
Executives with Unilever and McCormick position the deal as a proactive move to create a “better” food business that, unlike other high-profile industry mergers, comes from a place of strength and at a time when macrotrends favor the combination.
“The food industry is full of companies with poor growth exposure, underinvested brands and structural headwinds,” but “the combination of McCormick and Unilever Foods will be different,” Fernandez told Barclays on April 8.
For starters, he said, the “transaction originated from an inbound proposal” from McCormick, and is “not a transaction defined by the need to produce a turnaround.”
Rather, he said, it is a “transaction from a position of strength” that would allow the combined portfolio to tap into some of the fastest-growing trends in food currently, including increasing demand for more flavor.
He explained that while many European investors do not know McCormick well, “it is a clear leader in a very focused vertical – flavor – which is one of the few verticals in foods that sees GLP-1 as a structural tailwind rather than a headwind, and one that is not exposed to growing private-label presence.”
He added, “flavor is one of the few verticals where there is structural growth. Higher protein consumption correlates strongly with flavor growth: as protein consumption goes up, it has to be flavored. Flavor and condiments are categories that are growing across all generations, particularly with Gen Z.”
The emphasis on flavor highlights a broader strategic shift away from broad-based packaged foods towards higher-growth, higher-margin taste platforms that are less exposed to private label.
McCormick has a strong track record of growing legacy brands
He also extolled McCormick’s history of acquisitions and track record of “integrating them properly and growing them,” including McCormick’s 2017 acquisition of Reckitt Benckiser’s food division, which included iconic brands Frank’s RedHot, French’s and Cattlemen’s.
That deal could serve as a proof point for McCormick’s ability to add value and drive growth of well-established, large brands – quelling fear that many of the iconic brands in the would-be combined portfolio of Unilever Foods and McCormick have limited runway.
Fernandez further reassured investors of the growth potential under McCormick by pointing to its retail business brand and marketing investment of about 8% revenue, which Ackerman confirmed is significantly higher than the average of about 5%.
“If you compare the new McCormick with the broader American food sector, the level of brand investment is about twice as high. These are brands with momentum. These are businesses that have been investing significantly behind their brands and gaining competitiveness,” Fernandez said.
Synergies represent ‘complete industry logic’
McCormick’s historic success of growing already established brands is reinforced by “sizable” potential revenue synergies, Fernandez said.
These include expanding the McCormick brand internationally via Unilever Foods’ infrastructure, expanding Hellmann’s front-of-house in the US via McCormick Food Service, Knorr’s expansion into food service internationally and the “geographic expansion potential for brands like Cholula and Maille, which are perfectly positioned in the premium food space,” Fernandez said.
The combined revenue and cost synergies, which is estimated at $600 million, are higher than those of Unilever Foods and Unilever HPC, Fernandez said, noting: “That has complete industry logic.”
He also affirmed McCormick’s established algorithm of 3% to 5% top-line growth with 23% to 25% operating margin as “absolutely reachable in three to five years.”
Next steps
Unilever and McCormick are taking a what Fernandez described as a “cautious approach” in estimating that closing the deal will take 12 to 15 months – a timeline that has some investors on edge.
Immediate investor concerns are short-term risks, including possible disruption to Unilever’s momentum and McCormick’s ability to integrate a business that is twice its current size.
Fernandez said both companies are “conscious” of these concerns and “plans are in place” to execute the integration as smoothly as possible. This will include drawing on lessons learned and the experience from the team that helped Unilever carve out its ice cream business and divest its tea and spreads business before that.
“This is a team with a blueprint, governance and process in place. We will repeat what we did in ice cream,” which involved simultaneously separating and transforming the business, Fernandez said.
Foley echoed Fernandez, noting the two companies have “a lot of experience doing this,” even if not at this size and scale.
“When you look at an integration, it’s important to define the complexity that you’re dealing with,” Foley said, explaining that Unilever and McCormick must first separate the Unilever business and then integrate it.
“Right now, the separation, I think 80% of the sales of Unilever’s food business is already separated. It’s standalone. Think about the sales organization, manufacturing, R&D. Those are things that kind of come together and kind of reduce execution risk. But also think about market overlap. Now we’re talking about the combining aspect of this, and so we see a lot of overlap opportunities where we’re lifting and shifting great Unilever talent and ways of operating into a combined business,” he said.
As for retaining talent given the geographic differences of the businesses, he stressed the combined business will be a “global business” and will “need people globally.”
In the end, both men stressed that investors will have a larger, more globally scaled business focused on faster-growing flavor and condiments categories, with stronger margins and expansion potential.
