Global retailer Unilever Plc. (UL - Analyst Report) has decided to sell its Skippy peanut butter business to Austin, Minnesota-based producer of branded food and meat Hormel Foods Corporation (HRL - Analyst Report) for $700 million in cash.
Under the transaction, Hormel will also get Unilever's Skippy manufacturing plants in Little Rock, Ark., and Weifang, China.
Skippy, a brand of peanut butter was introduced in 1932. Skippy holds second largest market share in the U.S. after J.M. Smucker Co's (SJM - Analyst Report) Jif, according to market researcher Euromonitor International.
Unilever had also divested a number of its businesses last year. In August 2012, ConAgra Foods Inc. (CAG - Analyst Report) bought its Bertolli and P.F. Chang's frozen meals brands for $265 million.
The company has already divested its European frozen foods business. The markets in these 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.
During the first half of fiscal 2012, Unilever expanded its personal care business in Russia, Brazil and the Philippines through acquisitions. These are some of the fast-growing markets offering good growth opportunity.
An increasing middle-income population and positive consumer spending are the primary drivers of growth. With solid innovation and brand building, the company intends to drive growth in these markets in the near future.
On the other hand, Hormel's acquisition of the Skippy brand is a step toward the diversification of its business, as consumption of pork and beef in the U.S. is on a decline. The decline has been driven in recent years by higher prices, an uncertain economy and health-related concerns. The cost of grains that are fed to livestock have also risen, inflating the company’s costs.
The stock carries a Zacks #3 Rank (short-term Hold rating).