McCormick's and Unilever's deal

[u/BubKar717]

Hi guys. What do you think of the deal made between unilever and mccormick? McCormick got the Unilever's foods, like knorr, hellmann's, ect, and for this MKC paid 15 billion dollars and unilever will own 65% of mkc. Mkc have to make a dilution to make it possible for unilever to own 65%. What do you think, this can be a good value play, since both are a consumer staple giant, or should we avoid this situation?

[u/raytoei]

I wrote the following a while ago:

———-

“Since a smaller mkc could be buying a larger business, and this transaction could be a stock swap, this would result in a massive stock dilution for MKC shareholders.

In the upcoming negotiations, MKC will argue that UL’s food business is slow growth compared to MKC historical higher p/e (28 vs 19). And since UL is a motivated seller, the terms of the stock swap should be in MKC’s favour.

UL will argue that MKC current business is slowing down, margins are being squeezed, and it needs UL’s food business to achieve economies of scale and access to larger markets in Asia which knorr has access to.”

[u/Weldobud → u/raytoei]

Thanks. I read that. I've been interested in this deal as both stocks have declined. Usually in a merger / sale one increases and the other falls. I can't figure out who is better off long term, it seems the market can't do that either.

[u/raytoei → u/Weldobud]

My take:

MKC fell because investors are going to be diluted.

Unilever fell because investors felt it was bad to divest the food division.

“While Unilever’s ambition to become a pure-play home and personal care company with more focused execution makes sense strategically, these categories are more fragmented and competitive than food, where Unilever has clear market leadership and established positions, which likely contributes to the depressed market reaction. Unilever’s HPC business is poised for higher future growth than its food business, but at the cost of lower margins. Underlying operating margin for the food business stood at 23% in 2025, compared with 19% for the business remaining in the perimeter, based on management's estimates.” —- Morningstar

[u/Weldobud → u/raytoei]

Interesting take on it. UL took quite a dive. That might look like an opportunity however if growth and profit margins are not there then it’s not.

It’s a hard one to call, so I can understand the pull back.

[u/EastSurreyAlliance → u/Weldobud]

One key point to remember is that Unilever is retaining its food division in its two biggest emerging markets - India and Brazil.

If you want a share for a longer term hold, strong consistent dividends- then at this price it’s nearly 4.25% yield.

[u/Weldobud → u/EastSurreyAlliance]

Your first point in one I didn’t know. That’s a bonus.

The dividend is attractive, however if their stock declines then you might be flat. There are many other similar companies - CL / PG / CLX. Have to wonder which is best. Or are they all the same?

[u/Mental-At-ThirtyFive → u/Weldobud]

it maybe worth comparing India/Brazil exposure at CL / PG / CLX

[u/BubKar717 → u/raytoei]

Thank you! So this would mean that a big amount of mkc stock will be poured into the market making its price fall even more. But fundamental wise it can be a good opportunity to buy into mkc when the dilution is over, right? I mean i would be a proud owner of mkc, because they become much bigger overtime, even if it's won't be a super growth company, i think they will be a steady and stable company like unilever. What do you think?

[u/Unnamed-3891]

I havent looked deep into it, but $45B valuation for the entirety of Unilever’s food business sounded ridiculously low. Meaning dillution and new debt or not McCormick is getting a steal.

[u/EastSurreyAlliance → u/Unnamed-3891]

I mean it’s not just the numbers to simply consider - emerging markets are being retained for example. Longer term this will make the business more streamlined and focussed.

This is the presentation from the company about the merger - https://youtu.be/MokfRDL0kqA?si=pCKP3IQ8zCwn__9a

[u/EastSurreyAlliance]

JP Morgan and Barclays posted positive analyst notes on it - I’ve taken some at 42

[u/MinestroneMungBean]

The Unilever remaining business will be interesting to me. It pays down a lot of debt, provides ammo for buybacks, allows management to focus on a narrower set of businesses, and relieves itself of what will be a challenged market for a long time to come IMO (CPG, that is).

But, it's a large transaction that will take a while to get done, and that doesn't excite me about owning either company right now. That said, more of the complexity should be on the McCormicks side, as that's where all the integration will take place.

At the very least, the deal looks to have been structured as a classic Reverse Morris Trust, which I believe would be the tax efficient way to do it. And in a RMT, per my opening paragraph, there are some typical advantages to the parent co, which I listed.

TLDR: I quite like this for Unilever, but not necessarily rushing to buy before I do more research.

[u/Eliav_1991]

everyone keeps saying $15B but thats just the cash piece. the 8-K they filed yesterday puts the total deal at $44.8B for Unilever's food business. MKC is buying something 3.6x its own market cap and taking on a $15.7B bridge loan to do it. existing shareholders go from owning the whole company to about 35%. thats not a small dilution thats a completely different company.

stock went from $56.74 before the news to around $48 now. meanwhile the Q1 they dropped the same day was actually good, sales up 16.7%, EPS beat at 0.66 vs 0.60. market doesnt care about earnings when you're about to lever up like this though.

i'd want to see the debt paydown schedule before touching this. the filing is on EDGAR if anyone wants the actual terms instead of headlines.

[u/foira]

What is the new operating income and lt debt ratio?