KKR to acquire Unilever units for $8.04bn

February 2018 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

February 2018 Issue

Private equity (PE) giant KKR is to buy the margarine and spreads business of British-Dutch transnational consumer goods company Unilever for $8.04bn, subject to regulatory approvals and employee consultations, the companies have announced. The deal is expected to close in mid-2018.

KKR beat competition from rival PE firms, including CVC Capital Partners, Apollo Global Management, Blackstone, Clayton Dubilier & Rice and Bain Capital, for the Unilever units. The deal was the largest leveraged buyout announced in Europe in 2017.

KKR will acquire a number of Unilever brands, including Becel, Flora, Country Crock and Blue Band. The unit accounts for around 7 percent of Unilever’s global business, employing 2300 people. However, the unit has been one of the company’s poorest performing divisions in recent years. Unilever put the unit up for sale in April after reviewing an unsolicited $143bn takeover approach from Kraft Heinz, the US-based food giant. The decision to divest the units was driven by a desire to pursue “sustainable value creation” for shareholders. Indeed, Unilever assured investors following the rejected Kraft bid that the company would improve its performance going forward.

The underperforming spreads unit has seen declining sales in recent years as consumers have transitioned to more natural products, such as butter. The unit posted turnover of €3bn in 2016, however sales shrank by 2 percent in Q3 2017. Unilever cited declining bread sales as a further driver of the divestment. The company is under pressure to cut costs and accelerate sales following the rejection of the Kraft Heinz offer. Unilever said it would return the net cash realised from the transaction to shareholders “unless more value-creating acquisition alternatives arise”. The decision to sell the unit is a historic one for Unilever. Margarine was one of the driving forces behind the creation of Unilever in 1929. The company was born through the merger of British soap maker Lever Brothers and the Netherlands’ Margarine Unie, which began producing margarine in 1872.

In a statement announcing the deal, Paul Polman, chief executive of Unilever, said: “In April of this year we set out our 2020 programme 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 recognises 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.”

Nicolas Liabeuf, chief executive of the spreads unit, who will continue to lead the business, added: “There is a positive momentum in the performance of the Spreads business and we are excited about continuing this journey with KKR. We are confident that our business and the entrepreneurial spirit of our people will thrive further under new ownership.”

Johannes Huth, Head of KKR EMEA, said: “The strength of the portfolio of consumer brands in Spreads provides a firm foundation for future growth. We look forward to deploying our global network and operational expertise to support the business’s growth ambitions, while continuing to follow Unilever’s responsible sourcing policies, including working towards the goal of sourcing 100 per cent sustainable palm oil by 2019.”

KKR, which had $153bn in assets under management as of the end of September 2017, has been particularly active in the consumer sector in recent years. The firm has investments in India’s Coffee Day Resorts and Chinese white goods maker Qingdao Haier. In 2017, KKR also bought majority control of vitamin maker Nature’s Bounty. The acquisition of the spreads unit will be financed by KKR’s funds from both Europe and North America.

Richard Summerfield