Consumer products giant Unilever Plc. (UL - Analyst Report) is focused on shaping its portfolio to deliver sustainable growth and thereby concentrate in its core foods portfolio. In order to do so, it has recently completed the sale of its Wish-Bone salad dressing business to Pinnacle Foods Inc (PF - Analyst Report). The deal was announced on Aug 12 for $575 million in cash.
The sale does not include Unilever's facility in Missouri, where the brands are produced. Post-acquisition, the facility will continue to manufacture brands for Pinnacle Foods under a third-party agreement.
Wish-Bone is a leading salad dressing brand and holds the number one position in the Italian segment of the category. Wish Bone dressings include a broad range of liquid and dry-mix salad dressing flavors and comes under the Wish-Bone and Western brand names.
Of late, Unilever has been divesting its business to focus its resources on the core food portfolio. In Jan 2013, the company sold its Skippy peanut butter business to Austin, Minn.-based producer of branded food and meat, Hormel Foods Corp. (HRL - Analyst Report) for $700 million in cash. In Aug 2012, ConAgra Foods Inc. (CAG - Analyst Report) bought its Bertolli and P.F. Chang's frozen meals brands for $265 million.
One more reason for this divestiture is that the markets in the developed countries are mostly saturated and the macroeconomic climate is not conducive. As a result, business in these markets has been sluggish and volumes disappointing. Therefore, the company is making a strategic move to optimize its resources and allocate them to the more promising markets.
The sale to Pinnacle Foods will prove beneficial to the company as the brands have attractive margins. The acquisition is expected to immediately enhance Pinnacle’s profits. The deal is in line with the company’s 'Reinvigorating Iconic Brands' strategy, which involves actively managing iconic food brands with leading market positions.
Unilever holds a Zacks Rank #3 (Hold) while Pinnacle holds a Zacks Rank #1 (Strong Buy).