By Richa Naidu and Yadarisa Shabong
March 31 (Reuters) - Unilever said on Tuesday it was in advanced talks to combine its food business with spice maker McCormick in a potential deal that would deliver roughly $15.7 billion in cash to the consumer goods giant while giving its shareholders majority control of the merged entity.
If completed, the transaction would be structured as a so-called Reverse Morris Trust, which offers tax benefits. Unilever would spin off the division and then merge it with
the Cholula hot sauce owner. It is expected that Unilever shareholders would retain a 65% stake in the combined entity.
Analysts at Barclays valued Unilever's food business at between 28 billion euros ($32.10 billion) and 31 billion euros, including debt.
"Work remains ongoing to agree and finalise a transaction and it is possible that an agreement could be concluded today, although there can be no certainty that a transaction will be agreed," Unilever said in a statement.
Unilever said the proposed combination of its foods business would exclude certain assets, including its operations in India.
The potential deal marks the biggest move yet by Fernando Fernandez since taking the helm at Unilever in March 2025. In another major step, Fernandez last year completed the spin-off and listing of Unilever's multi-billion euro ice cream business, home to Ben & Jerry's and Magnum.
Unilever traces its roots in the food sector to 1860, when one of its Dutch founding families began building up its business in the butter trade. Unilever itself was created in 1929 when Margarine Unie and Lever Brothers joined in what was at the time one of the biggest industrial mergers in European history.
Unilever has spent most of the last century snapping up food and beverage brands from Marmite to Colman's and Horlick's - until the past decade when many shoppers started shying away from packaged food in favour of fresh groceries that are seen as healthier.
The rise of GLP-1 weight loss drugs in recent years has further eroded demand and investors' faith in packaged food, especially due to stiff competition from cheaper private label brands that make similar products.
Over the past year, Unilever has divested several non-core food assets, including snack brand Graze and plant-based meat brand The Vegetarian Butcher.
Though Unilever's food unit is a high-margin business, sales growth has lagged the company's personal goods and beauty businesses and weighed on its ambition to increase overall sales by 4%-6% in the near term.
The company has been under investor pressure to shed food brands for years, increasingly so after it was revealed in 2022 that billionaire activist-shareholder Nelson Peltz had built a stake in Unilever. Peltz has been linked to the departure of two CEOs, Alan Jope and Hein Schumacher, who investors felt were not streamlining Unilever's portfolio fast enough.
Rival personal care and household goods company Procter & Gamble exited the food and pet food sectors more than a decade ago and, following an acrimonious proxy battle with Peltz in 2017, ultimately streamlined its portfolio to focus on core brands.
Several analysts have said a deal would make strategic sense, but warned it would be complex given McCormick's smaller size.
McCormick has grown its business through deals, with the $4.2 billion purchase of Frank's and French's in 2017, followed by Cholula hot sauce in 2020 in an $800 million acquisition from private equity firm L Catterton.
($1 = 0.8724 euros)
(Reporting by Yadarisa Shabong, Prerna Bedi in Bengaluru and Richa Naidu in London; Editing by Sherry Jacob-Phillips)
