Fri, Apr 07, 2017 - Page 10 News List

Unilever planning US$5.3bn buyback, divesting spreads

RESTRUCTURING:After rejecting a takeover bid, Unilever plans to improve returns by cutting costs and selling or spinning off its spreads business

Bloomberg

Unilever PLC plans to buy back 5 billion euros (US$5.3 billion) of stock and divest its spreads business in an effort to safeguard its independence after fending off a takeover bid from Kraft Heinz Co.

The owner of Dove soap and Hellmann’s mayonnaise raised its target for cost savings and moved to boost its dividend after a strategic review prompted by the unsolicited US$143 billion takeover offer, which Kraft Heinz withdrew in February after only two days.

Unilever said it would slash advertising and cut an unspecified number of jobs while reviewing its Anglo-Dutch dual nationality.

“Restructuring and change is just a fact of life in our industry,” chief financial officer Graeme Pitkethly said in an interview.

Consumer products giants like Unilever and Kraft Heinz have come under pressure from changing consumer tastes, including a growing preference for fresh foods over packaged staples.

Unilever executives have pledged to improve returns after the Kraft Heinz bid while contrasting their long-term approach to creating shareholder value with what they describe as a short-term focus at the US company.

The spreads business, which includes Flora, Stork, Country Crock and other slow-growing brands, will be sold or spun off, the company said.

Unilever said it is integrating food and refreshment businesses into a unit to be based in the Netherlands. It is also considering simplifying its dual legal structure in which it is both a public limited company in the UK and an NV, the Dutch equivalent, in the Netherlands.

Unilever has had “lots and lots” of approaches for the spreads unit from private-equity firms, Pitkethly said, without naming them.

The company is confident it can sell the business at a favorable price, he added.

The changes will result in some job cuts to senior and middle management, while the company also expects to wring savings from its procurement and marketing operations, he said.

Among other changes, Unilever plans to reduce the number of advertisements it commissions by 30 percent, he said.

“The review that the board has undertaken has been detailed and comprehensive,” Unilever chairman Marijn Dekkers said in a statement. “It has confirmed that our model of long-term shareholder value creation has been successful and remains as valid as ever. The actions we are now going to take are fully supported by the Board.”

Unilever raised its cost-savings target to 6 billion euros from 4 billion euros and said the dividend would also increase 12 percent.

The company said it expects 3.5 billion euros of costs over 2017 to 2019 related to the efficiency measures.

Unilever had already begun rethinking its operations before the Kraft Heinz approach under a program called “Connected 4 Growth.”

To reduce costs it embraced zero-based budgeting, under which individual expenses are reviewed during each accounting period rather than rolled over.

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