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Can Unilever's Spreads Business Sale Drive Growth Further?

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Moving ahead with its portfolio restructuring strategy for long-term growth, Unilever PLC (UL - Free Report) recently announced plans to offload its global Spreads business to KKR (KKR - Free Report) . Incidentally, the provider of personal care products, which was looking for buyers for its spreads unit, received a binding proposal from KKR to buy the shrinking business. Expected to close in mid-2018, the cash-free and debt-free deal is worth roughly €6.825 billion.

Sources revealed that Unilever’s spreads business has been sluggish for a while now due to consumers’ preferences moving from bread and margarine to more natural foods. While Unilever has been taking initiatives to improve the business, management believes that its Spreads business is likely to reach its full potential under KKR’s ownership.

In fact, industry experts also believe that funds like these can run such business segments more efficiently, by doing away with underperforming parts and accelerating growth via other game plans. Thus, sale of the Spreads business to KKR is likely to support growth of this segment, given the global investment firm’s robust network and operational excellence.

The transaction, which will include sale of brands like Becel, Flora, Blue Band, I Can’t Believe It’s Not Butter and more, remains subject to regulatory approval. Further, Unilever plans to use the cash generated from this deal in making shareholder-friendly moves, or to carry out other buyouts.

What Has Been Driving Unilever’s Strategic Moves?

Unilever has been focusing on bolstering and enhancing efficiency after the failed $143-billion takeover attempt by Kraft Heinz Co. (KHC - Free Report) earlier this year. Since then, the company has undertaken a comprehensive review to return more cash to shareholders and enhance margins to boost performance. In this regard, Unilever had decided to offload its shrinking spreads business in April, when it also announced plans to raise cost-savings target and combine foods and refreshments businesses.

Clearly, the aforementioned sale to KKR marks a solid step in achieving these goals. As part of strengthening its portfolio, the company has also remained keen on making strategic buyouts. This is evident from Unilever’s agreement to acquire Brazilian natural and organic food business Mae Terra in October, which complements the company’s efforts to expand in the high-growth natural and organic segment.

Apart from natural foods, Unilever is also making aggressive attempts to nourish its beauty and wellness products portfolio. Evidently, the company inked a deal to buy Schmidt’s Naturals last week, which is likely be a valuable inclusion in the company’s Personal Care Business. Prior to that, in November, the company agreed to acquire leading skincare and haircare brand Sundial Brands and cosmetics company Carver Korea in September.




 

Unilever’s robust efforts to reshape its portfolio have been appeasing investors, as reflected by this Zacks Rank #3 (Hold) stock’s impressive past performance. Well, shares of this consumer products giant have surged 40.7% this year, crushing the industry’s rally of 21.3%. We believe that prudent endeavors like the aforementioned sale of the Spreads unit, is likely to drive further growth for Unilever.

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Conagra Brands, Inc. (CAG - Free Report) , with a long-term EPS growth rate of 7%, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nomad Foods Limited (NOMD - Free Report) , also with a Zacks Rank #2, has surpassed earnings estimates in the past three quarters.

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