© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
March 3, 2014 7:46 pm
Unilever is soliciting buyers for its Ragú pasta sauce brand in the US, estimated to be worth between $1.5bn and $2bn, in a further shift from low-margin food products towards its more profitable personal care brands, such as Dove soap.
Morgan Stanley is one of the banks understood to have been approached to handle a sale for Unilever, which has made a string of food disposals including that of Peperami, the salami snack, last month.
The world’s biggest food and drink manufacturers, including Switzerland’s Nestlé, are looking to improve profitability by cutting costs and pruning low growth businesses in the face of a slowdown in demand in emerging markets and weak recovery in mature markets, including the US and Europe
Unilever sold Skippy peanut butter last year for $700m, and Wish-Bone salad dressings. Its recent acquisitions have focused on the higher margin home and personal care segment, including those of Iluminage, a beauty company, and Alberto Culver beauty products.
Paul Polman, chief executive, has shifted the group’s centre of gravity towards home and personal care products, including soaps and shampoos, sales of which have increased from 46 per cent of group total to 54 per cent over the past five years. Home care sales – including Cif cleaner and Surf detergent – grew 8 per cent organically last year against 0.3 per cent growth in the foods business.
He has also been keen to increase exposure to emerging markets by exiting low-growth food businesses in mature markets, such as the US and UK.
Analysts at Bernstein Research said in a recent note: “Our long-term thesis on Unilever is that the strategic evolution to home and personal care and emerging markets will enhance medium-term sales growth, margins, returns and valuation.”
Ragú is one of the biggest-selling pasta sauce brands in the US. Unilever sold the UK licence to the brand in the UK and Ireland three years ago but retained it in the US.
A headline price of between $1.5bn and $2bn would represent 2-2.8 times estimated annual sales of €520m, which one analyst said was at the top end of recent deals in the sector. Ragú is estimated to account for 1 per cent of total Unilever sales.
Potential buyers include Heinz, the tomato ketchup maker owned by Berkshire Hathaway and 3G Capital, the Brazilian private equity fund, Barilla, the Italian pasta group and JM Smucker, the US fruit spreads manufacturer, according to analysts.
Other food brands that Unilever has been considering for sale include Bertolli, the olive oil business. A more radical disposal would be that of the slow-growing – but large – spreads business, which includes Flora.
Unilever and Morgan Stanley declined to comment.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in