The winner is Unilever - Views on News from Equitymaster

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The winner is Unilever

Jun 7, 2000

Unilever finally rested control of US food company Bestfoods in all cash deal worth $20.3 bn or $ 73 per share. After the merger Unilever will rank as the world’s largest food conglomerate with annual sales of $ 52.3 bn and profits of $ 6.2 bn. The companies estimate that their combination will lead to savings of up to $750 m annually. Unilever will benefit with well-known brands of Bestfoods, which includes Knorr, Thomas English muffins, Skippy peanut butter and Hellmann's mayonnaise. The acquisition provides Unilever inroads into emerging markets where Bestfoods already has established a presence. Bestfoods’ Knorr soups, corn oil and starches products ranks number one in market share across all Latin America and Asia. This will open the door for Unilever in becoming leader in these markets. Also the merged entity would be able to negotiate the prices to improve their operating margins.

Unilever has recently acquired product line of ice cream maker Ben & Jerry’s Homemade Inc. and diet food company Slim-Fast for more than $2.6 bn. The acquisition Bestfoods will enhance its present product portfolio, which consist of packaged goods such as Lipton tea, Dove soap and Elizabeth Taylor fragrances. Bestfoods key brands will drive Unilever’s food business forward making the company number one in dry soups and mayonnaise giving stiff competition to Nestle SA, which is the world’s biggest food company.

The move is expected to benefit Unilever’s subsidiary HLL in India. HLL the largest consumer products and food company in India would be able to leverage on the brands of Bestfoods. In the domestic market HLL with 115 brands enjoys a leadership in soaps, detergents, color cosmetics, ice cream and packed tea segments. In future the new products from the parent’s product basket which now consist of brand like Knorr will be launched through HLL increasing its existing food product portfolio. This will give stiff competition to the companies like Nestle. HLL, which is increasing its presence in the foods segment, will also be able to improve its topline growth in future, which registered marginal growth of 7% in the current year.

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