Barclays has defended Unilever PLC's (LSE:ULVR) decision to sell its Foods division to American spice giant McCormick, arguing that investor frustration with the deal's complexity is understandable but likely to fade over time.
Both Unilever and McCormick shares have fallen around 8-9% since the deal was announced on 31 March, an unusually poor reception given that transactions of this kind rarely leave both parties worse off immediately.
Barclays believes the board misjudged how much investor support it would receive, given the significant improvements Unilever has delivered over the past three years.
The deal was not planned: McCormick approached Unilever, which then had a duty to consider the offer given the strong strategic fit and absence of any category overlap between the two businesses.
The transaction is structured as a Reverse Morris Trust, a legal mechanism that eliminates US capital gains tax on the deal, saving Unilever an estimated €1.5 billion to €2 billion compared with a straightforward sale.
Unilever will receive €13.7 billion in cash at closing, more than Barclays had expected, which the bank says effectively covers the estimated €4 billion non-US tax bill.
Each Unilever shareholder will receive approximately 0.2 McCormick shares for every Unilever share they hold, making them majority owners of the enlarged McCormick business.
The remaining Unilever business will be a focused home and personal care company with revenues of around €39 billion, spanning brands across haircare, skincare, deodorants and household cleaning products.
Over the past three years, Unilever's personal care and household products business has grown volumes by 2.5% annually, compared with just 0.3% for its peers, a performance record that has been obscured by the slower-growing Foods division.
Barclays rates Unilever overweight with a price target of 5,500p, implying upside of around 32% from the current share price of 4,173p.
The bank says the current valuation trades at a near 25% discount to comparable consumer goods companies, a gap it regards as unwarranted given Unilever's track record.