The Unilever (LSE:ULVR) share price fell 7% in a day on Tuesday (31 March). And I think value investors need to take note.
The stock was down after news of plans to separate its food business. But a complicated deal might have created an interesting opportunity.
What’s happened?
Unilever has been on a restructuring mission. It spun out its ice cream division at the end of 2025 and is now divesting its other food businesses.
On Tuesday (31 March) Unilever announced a deal to sell its food brands to McCormick. The implied valuation is $44.8bn.
This values the food business at an enterprise-value-to-EBITDA (EV/EBITDA) multiple of 13.8. But that’s not the interesting bit.
The stock fell 7% on the news. And the decline implies an EV/EBITDA multiple of 12.7% for the remaining parts of the company.
That means the more attractive divisions are trading at a lower multiple than the ones it wanted to lose. That’s the bit worth noting.
The reason is the nature of the deal. It’s more complicated than investors might have been hoping for and that’s created some uncertainty.
The deal
Officially, Unilever is selling its food businesses to McCormick. But it’s not as straightforward as the FTSE 100 firm getting cash for its businesses.
Of the $44.8bn, only $15.7bn is cash. The rest of it is in stock – in a company featuring the businesses Unilever was trying to get rid of.
The company itself is going to own almost 10% of the new enterprise when the deal closes next year. And its existing shareholders will own 55%.
There’s also a potential antitrust issue. Merging with McCormick creates a firm so big that it might have implications for competition.
That creates uncertainty over what it will take to get the deal done. All of this makes it less attractive than a straightforward cash sale.
Complications
These might look like minor issues, but they’re actually quite significant. They affect both Unilever and its shareholders.
The company won’t be able to sell its stake in the combined entity for at least a year. So it’s going to be stuck with that for some time.
Given the firm’s aim of moving away from these businesses. It’s a step in the right direction, but it’s not what investors might have hoped for.
Shareholders will be able to sell their shares immediately. But if they all try to do this at the same time, the price might well crash.
That means their ability to realise the $44.8bn headline figure depends on the stock market. And it’s therefore far from guaranteed.
Opportunity?
Unilever’s strategy of focusing on its most promising divisions has been a good one. But the latest deal is more complicated than shareholders might like.
The stock market’s reaction to the deal is understandable. Despite this, it might have created an unusual opportunity for value investors to consider.
Unilever shares don’t often trade at low multiples. And the current situation isn’t one that’s likely to show up again.
As a result, I think the stock is well worth considering. There’s uncertainty, but that can often be what creates the best investment opportunities.
