Unilever food spin-off draws criticism from investor over $66bn deal strategy

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Unilever food spin-off criticism

Highlights

Unilever plans to spin off its food division and merge it with McCormick in a transaction valuing the combined business at nearly $66bn, despite earlier statements that no further major asset sales were expected.
Prominent investor Terry Smith criticizes the deal's activist-driven strategy, voices doubt about McCormick's management capacity, and highlights concerns over indebtedness and the scale of organizational change for shareholders.
Fundsmith Equity, managing £12.3bn, underperformed with a 2.9 per cent decline in H1 versus an 11.2 per cent MSCI World Index gain, prompting portfolio turnover exceeding 50 percent and exit from positions such as Luxottica, LVMH, Nike, and Novo Nordisk.

Investor challenge over deal direction

As reported by the Financial Times, Smith says Unilever management told him after the 2025 demerger of its ice cream division that no more significant asset sales were expected in the foreseeable future, before the group announced in March that it would spin off its food division and combine it with McCormick in a transaction valuing the combined business at nearly $66bn.

In his latest investor update, Smith says the move contradicts what he had been told and what he valued in former chief executive Hein Schumacher's approach. He adds that the transaction carries "all the hallmarks" of Nelson Peltz, the activist investor who sits on Unilever's board.

Smith also says he is sceptical that corporate activity solves underlying business problems and criticises boards that listen to activists who are not long-term investors. A person familiar with the negotiations told the Financial Times in April that Trian, Peltz's investment firm and a major Unilever shareholder, had been highly forceful in pressing for a sale of the food business.

Unilever says the transaction enables a growth-led separation of its food business at an attractive valuation and creates two stronger businesses positioned to compete in their categories. The company adds that the deal receives unanimous board approval.

Shareholder concerns and Fundsmith repositioning

Some Unilever shareholders are concerned about the indebtedness of the new company they will partly own, as well as the scale of change at the FTSE 100 group after two major transactions. Smith says his firm knows McCormick's management well but is not convinced it is strong enough to run either the existing business or a much larger combined group.

His comments come as Fundsmith Equity, the £12.3bn fund he runs, reports a 2.9 per cent decline in value in the first six months of the year, compared with an 11.2 per cent rise in the MSCI World Index and a 1.8 per cent return on cash over the same period.

Smith says the shift of money into passive index trackers benefiting from rising technology stocks is one of the main reasons for the fund's underperformance. He says the firm is now adapting its investment process and has turned over half the portfolio in the first six months of the year, signalling more active trading ahead while still expecting turnover to remain below most active funds.

Fundsmith has also sold, or started exiting, positions including Luxottica, LVMH, Nike and Novo Nordisk, according to Smith.

Our earlier analysis of Unilever’s share-price move focused on the company’s completed €1.5bn buyback and management’s reinvestment into ordinary shares, alongside a new distributor-financing initiative in Kenya. We noted that these corporate actions helped support a bullish technical structure, while some momentum indicators also pointed to potential near-term exhaustion and heightened volatility.

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