After an active process with several private equity funds involved, Unilever has decided to sell its margarine and spreads business (Becel, Flora, Country Crock, and Blue Band brands) to KKR for $8.04 billion. KKR is a global investment firm that manages multiple alternative asset classes. The firm has $153 billion in assets under management and has a long history in the consumer sector.
The auction began in April after Kraft Heinz tried to take over the company, causing Unilever to revalue its assets. As a result, Unilever decided that it would focus on more growth-oriented products. The spreads business has not done well recently, with people moving away from the products for more healthy choices. Yet, the business is still profitable, which makes it attractive to these private equity shops. CEO Paul Polman said of the deal:
“In April of this year we set out our 2020 program to accelerate sustainable value creation. After a long history in Unilever we decided that the future of the spreads business would lie outside the group. The announcement today marks a further step in reshaping and sharpening our portfolio for long term growth. The consideration recognizes the market leading brands and the improved momentum we have achieved. I am confident that under KKR’s ownership, the spreads business with its iconic brands will be able to fulfil its full potential as well as societal responsibilities.”
The deal is amongst the largest of the year, and this trend is expected to continue as dry powder is used up. There were 18 buyouts worth at least $5 billion in 2017. Just between KKR, CVC, and Apollo, there is $57.3 billion in capital commitments for funds raised in 2017. The large amounts of capital leads to larger deals and higher premiums paid, as these firms seek to deploy their money. The deal is still subject to regulatory approvals and employee consultation in jurisdictions. With the deal closing soon in mid-2018, Unilever plans to distribute the cash to shareholders.
Credit Suisse, Deutsche Bank, and KKR Capital Markets are expected to lead the debt financing with a number of other firms. These banks syndicated a €4.6 billion leveraged loan. This will be will the biggest single-tranche euro-denominated term loan B since the financial crisis. It also comes when the market is quiet, meaning that all eyes will be on this deal. As one senior banker said:
“Unilever spreads is a resilient business that generates a lot of cash flow, and that makes it very attractive from a debt perspective. There is a lot of liquidity out there and this is a hotly anticipated, must-do deal that funds will want exposure to.”
Unilever is not backing down from its high growth and diversification goals. For example, it bought Sir Kensington’s, which produces natural non-GMO condiments. It also has come to terms with a Brazilian natural and organic food business called Mãe Terra. This could provide even more growth opportunities as the global organic food market is expected to grow at over 16% through the year 2020. The global packaged food market is expected to grow at 4.5%.
Ultimately, this could also be a good deal for KKR, who has the scale and experience to make this deal work. As Julian Wild put it:
"I am sure they will do all the things which private equity are well known for: review every part of the spreads business, strengthen management where necessary, take cost out, generate as much cash as possible to pay down debt, spend capital where it generates the best returns, prune some of the more peripheral brands and bring some excitement and innovation to the category."