Food giants to face demand for sell-offs

Date: 14/09/00

By Renée Cordes

ANGLO-Dutch food group Unilever and US giant Bestfoods will have to shed brands in some markets in order to convince EU regulators that their planned €23.6-billion merger will not create or strengthen a dominant position, warn analysts.

The European Commission recently extended its deadline to rule on the deal from 18 to 28 September, after the firms involved offered unspecified concessions to allay concerns that the merger would harm competition.

According to Union merger rules, the routine one-month deadline for decisions is automatically extended if companies propose solutions to competition problems. Under the deal, Unilever will acquire all the outstanding shares of Bestfoods, overtaking Philip Morris' Kraft Foods to become the world's second-largest food company after Nestlé.

Bestfoods and Unilever have said they hope the merger will be completed in the fourth quarter of this year, subject to approval by shareholders and anti-trust officials on both sides of the Atlantic.

Industry experts say that while they cannot see any major hurdles which would prevent the deal from going through, they expect it to be delayed as companies seek to eliminate overlaps in some product categories.

"There are a few brands dotted around the place which are undoubtedly going to cause regulatory problems," said Graham Jones, an analyst with London-based investment bank Donaldson, Lufkin and Jenrette. He cited the mayonnaise sector in France, where the merged firm would own the top two brands, and dehydrated soups and stock cube markets in the UK and the Netherlands.

An analyst with another British-based investment bank said he was confident the companies would fight to retain their most valuable brands, such as Bestfoods' Hellmann's mayonnaise and Knorr soups, giving up smaller brands such as Unilever's Oxo beef stock in some markets. "We are talking about overlaps in very specialised niche markets," he added.

The combined company, which would have had 1999 revenues of some €60.8 billion and operating income of about €7.2 billion, will have leading brand positions in several product categories including culinary products, spreads, tea, ice cream and frozen food.

"This transaction creates the pre-eminent food and consumer goods company," said the chairmen of the two firms in a joint statement when the deal was announced. "Together we will have a portfolio of powerful worldwide and regional brands with strong growth prospects."

The companies estimate that the merger will lead to cost savings of about €872 million euro resulting from the elimination of overlaps, combined purchasing savings, synergy in distribution and marketing, and the streamlining of general administrative tasks

Anglo-Dutch food group Unilever and US giant Bestfoods will have to shed brands in some markets in order to convince EU regulators that their planned €23.6-billion merger will not create or strengthen a dominant position.