Unilever, McCormick Agree on Deal to Merge Food Business
The Facts
- Unilever announced on Tuesday that it had struck a $44.8 billion deal to merge its food division with the spice maker McCormick in a Reverse Morris Trust transaction, which is tax-free for U.S. federal income tax purposes.
- Under the terms of the arrangement, McCormick will pay Unilever $15.7 billion in cash. In addition, Unilever and its shareholders will receive a 65% stake in the combined entity, valued at $29.1 billion based on McCormick's volume-weighted average share price over the last month, at $57.84.
- Unilever and McCormick expect the transaction to create a "global flavor powerhouse" with annual revenues of $20 billion and yearly run-rate cost synergies of $600 million after three years. To support its growth, the company will reinvest $100 million of incremental cost and revenue synergies back into the business.
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The Spin
Narrative A
The McCormick-Unilever Foods merger is a landmark deal that will create a $20 billion powerhouse and bring iconic brands such as Knorr, Hellmann's and Frank's RedHot under one roof. The agreement is a win-win for all involved, with McCormick gaining the global scale it needs. Unilever, meanwhile, will receive a majority stake and the freedom to sharpen its focus on its core products.
Narrative B
This merger sounds impressive, but the regulatory risk here is real and immediate. The FTC blocked a prior Unilever-McCormick deal in 2008, and this one is exponentially larger. With McCormick's stock already down 31.47% over the past year, if the deal were to fall through, it would trigger another brutal re-rating of the company, making this a dangerous bet.
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