City gives blessing to Unilever food break-up

The company is understood to be giving serious thought to a spin-off of its food business into a separate listing. Photo / 123RF

The City has given its blessing to a dramatic break-up of consumer goods goliath Unilever, which could see the food arm that makes Hellmann's mayonnaise and Knorr stock cubes spun off into a new £30bn-plus company.

The Anglo-Dutch giant has launched a far-reaching strategic review just days after its independence was threatened by an audacious £115bn takeover approach from Kraft Heinz.

"A spin-off makes sense on paper and if the management can make it work then we would be sold on that. It would be the most palatable option," said Matthew Tillett, fund manager at Allianz, the 14th largest holder of Unilever's Dutch shares.

The company is understood to be giving serious thought to a spin-off of its food business into a separate listing.

The move would give greater visibility between the higher earnings in its booming home and personal care division, which includes Dove soap, Lynx, Persil and Domestos brands, and its more sluggish food division.

"We are pleased that the review will be comprehensive, with all options - however radical - considered dispassionately," said Giles Parkinson, fund manager at Aviva Investors.

The group's personal care division accounts for about 60pc of the business and sales are growing at a rate of 4.2pc. Its food division has sales of €10bn and is growing sales at less than half that rate, as consumers shun established packaged food brands in favour of healthy or artisanal products.

The promise of a potential shake-up of the UK's third largest company has also prompted speculation that Unilever could simplify its complicated 90-year-old Anglo-Dutch dual structure.

However, the tax consquences are likely to prevent such a move. Currently, UK investors receive tax credits on UK-sourced dividends and Dutch shareholders can reclaim or avoid withholding tax on Dutch-sourced dividends.

Unilever had considered a separation and a move to a single listing 12 years ago, but dismissed the idea because of the onerous tax charges, which would limit investors' flexibility to buy shares in different currencies. "The price of simplicity may be too high," said Tom Wesel, partner at international tax boutique Milestone.

Mr Parkinson met with chief executive officer Paul Polman and chairman Marijn Dekkers this week to discuss the dramatic events of the past fortnight and said that he was confident the bosses had long-term shareholder interests aligned with their objectives.

"A split into foods and personal care might allow the former to flourish as an income stock and the latter as a growth stock," said Martin Deboo, analyst at Jefferies. "Investors might value the two at more than Unilever currently."

Investors also highlighted the one-off charges involved in a potential spin-off. During Cadbury's demerger with Schweppes, the two companies were stung with £130m on advisers' fees.

Top shareholders polled by The Sunday Telegraph said they remained supportive of Mr Polman.

"His feet are slightly being held to the fire now... but we don't feel there's any need for a drastic change," said Simon Brazier, from Investec Asset Management. "He's doing a good job."