Following Kraft Heinz, Unilever is said to be in negotiations with McCormick to merge food businesses, with a deal potentially reached by month-end at the earliest.

Wu Rong

Unilever’s management seems determined to find a more “powerful” future for its food business.

Following yesterday’s Financial Times report that discussed negotiations with Kraft Heinz, today’s “rumor” shifts to another major condiment company, McCormick. In the Chinese market, the latter is known for supplying ketchup to McDonald’s restaurants.

According to The Wall Street Journal this morning, citing “insiders,” Unilever is in talks to spin off its food business and merge it with McCormick; “insiders” say that if negotiations proceed smoothly and do not break down, this all-stock deal could be “completed within a few weeks.” Subsequently, Bloomberg also quoted “insiders” with a similar statement, suggesting the deal might be finalized “by the end of this month.”

Let’s take a closer look at the details of this latest development.

Deal Structure

According to “insiders” speaking to The Wall Street Journal, Unilever is negotiating to spin off its food division and merge it with U.S. condiment company McCormick. If this major strategic move goes through smoothly, it will continue the trend of consumer goods companies streamlining their operations, allowing Unilever to focus more on beauty, personal care, and home products.

“Insiders” say that if negotiations do not fall apart, an all-stock deal could be reached within a few weeks, but the specific structure of the deal is still unclear.

Little Snack notes that although the core information is straightforward, it doesn’t prevent this from being the most coherent rumor so far. Compared to previous considerations of spinning off the food division or negotiations with Kraft Heinz, this rumor emphasizes that “discussions are ongoing” and “may be completed within weeks,” making it more time-sensitive.

Later, Bloomberg cited “sources” indicating that the deal could be completed by the end of this month, using the so-called “Reverse Morris Trust” structure, a tax-efficient merger method. Bloomberg emphasized that no agreement has yet been reached, and negotiations could still fail; representatives from Unilever and McCormick did not immediately respond to requests for comment.

According to The Wall Street Journal, McCormick is headquartered in Maryland, USA, and is known for its red-lid bottles and rectangular tin packaging. Its brands include French’s mustard, Old Bay seasoning, and Cholula hot sauce. The company is scheduled to release its first-quarter earnings on March 31. Its current market value is approximately $14.8 billion. In comparison, Unilever’s market cap is close to $140 billion, and its food business could be valued at several hundred billion dollars.

This indicates that Unilever’s food division is much larger. The paper specifically notes that in 2022, after hedge fund Trian Fund Management heavily bought Unilever shares and its founder Nelson Peltz joined the board, the company became known for pushing large conglomerates to split and reorganize.

“Recently, the consumer goods industry has been one of the few sectors still maintaining large integrated corporate structures, with many companies announcing divestment plans,” The Wall Street Journal states. Over the past few years, Unilever has been exploring various transaction options for its businesses, including spinning off brands like Dove and the ice cream division of Wall’s.

Compared to other rumors this week, Bloomberg’s report does not specify any potential transaction targets but quotes “sources” saying “Unilever may not pursue any deals before 2027”; the Financial Times mentions Kraft Heinz but emphasizes that negotiations have already ended, without reporting on the outcome.

Data shows that an all-stock deal involves the acquirer using only its own shares to purchase the target company, without any cash payment.

This means that if successful, Unilever would not pay a large cash sum to acquire McCormick’s food business (or vice versa, depending on the specific merger structure), and shareholders of both companies might jointly hold the new combined entity. The advantage of this approach is that it preserves cash for operational use.

McCormick

In the condiment sector, Unilever, Kraft Heinz, and McCormick all have significant operations in China. Regardless of how they are combined, a new major condiment “player” will emerge.

Little Snack previously reported that in China, McCormick currently operates brands such as “McCormick,” “Fenle Flavor,” “Fenle Flag,” and “Daqiao,” covering spices, Western sauces, hotpot seasonings, and more. Its signature product, ketchup, is often compared to Heinz ketchup.

In terms of segments, McCormick China covers three areas: retail (selling condiments directly to consumers), foodservice (providing condiment solutions to mid- and high-end restaurants), and flavor solutions (offering flavor development services to food companies).

At an investor conference in 2024, Sumeet Vohra, President of McCormick Asia-Pacific, revealed that China is its largest market in the Asia-Pacific region. “Our brands rank first or second in multiple categories and markets,” he said. “McCormick is the most well-known brand in the Chinese herbs and spices category.” The conference materials also show that McCormick ranks second in the Chinese ketchup market.

Vohra stated that McCormick has been in China for 35 years, starting from a joint venture in Shanghai, initially supplying B2B customers with condiments. Later, the company expanded into the B2C market, organically growing the brand’s sales (excluding acquisitions). In 2013, McCormick made its first acquisition in China, acquiring the well-known condiment brand Daqiao in Central China to support further growth.

Meanwhile, why is Unilever so “persistent” about spinning off its food business?

Bloomberg also believes that this divestment is part of Unilever’s strategic shift toward health and beauty products. Over the past decade, Unilever has sold other food assets, including its global spreads business and recent brands like Graze snacks and The Vegetarian Butcher, a plant-based meat producer.

Bloomberg points out that due to tightening consumer budgets in Europe and the U.S., consumers are reducing spending and turning to lower-priced private label foods. As a result, Unilever and other large food companies face growth challenges. Additionally, the increasing popularity of GLP-1 weight-loss drugs poses a threat, as overall calorie intake decreases or consumers opt for low-calorie products.

On the other hand, the beauty industry remains a key growth area for multinationals, as both young and older consumers spend on multi-step skincare routines, perfumes, and other products, Bloomberg believes.

However, the timing of this deal has sparked extensive debate among analysts. Little Snack notes that since the latest rumors emerged, Unilever’s stock has been declining for several days, with investors questioning the benefits of another large spin-off so soon after the long process of divesting its ice cream business.

For example, analysts at Barclays suggest that the best approach would be for Unilever’s management to “be patient, focus all resources on achieving the 2026 targets, and keep all options for the food business internal until a viable value-creating plan is on the table.”

If the food division is fully spun off, Unilever’s annual revenue would decrease by about 26%, from €50.5 billion to €37.6 billion. Although growth would slow, the food segment’s profit margins are relatively healthy within Unilever. UBS estimates that this move could slightly boost underlying sales and volume growth but would reduce operating profit margins by 80 to 100 basis points, also impacting Unilever’s cash generation capacity.