Glenboden M & A Originations

Unilever could solve its Bertolli dilemma by selling it to Barilla

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Origination Status rumours that Bertolli is next on Unilever's divestment list, May 2008
Asset 'Bertolli' branded Italian olive oil and balsamic vinegar business
Buyer candidates include Barilla
Seller Unilever (UK /Holland), multinational FMCG group
Financial Terms rumoured valuation of € 200 mln, represents P/S of 0,67
Buyer Rationale attractive valuation
Seller Rationale portfolio restructuring, exit from low-margin grocery businesses
NBs Unilever intends to licence back the Bertolli brand from the buyer, for value-added categories
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Last November, we commended Unilever on managing to sell two of its non –core brands, Lawry’s marinade and Boursin fresh cheese, both at multiples of x4 Sales. Well, it now looks like that was the ‘low hanging fruit’, and that subsequent divestments by the group are going to be more difficult. Here, Unilever intends to sell the low –margin parts of the Bertolli portfolio, while keeping the brand rights. That’s something which works better in theory than practice, and at best will severely depress the valuation. Better to keep things simple, and sell the whole business to an authentically Italian or Mediterranean player like Barilla.

Bertolli claims to be the world’s leading olive oil brand, but that’s a category which is very fragmented, has high materials costs and is prone to commoditization. It’s understandable therefore that Unilever would wish to exit that business and sell the refining assets. On the other hand, Bertolli is central to Unilever’s ‘Mediterranean’ theme, and the pasta sauces and spreads side of the business have higher margins and remain core categories for Unilever. What to do with this dilemma ?

Presumably Unilever is looking for a buyer whose ambitions are strictly limited to the commodity olive oil and balsamic vinegar categories. In that case, the universe of buyers is limited to small players, families, management, i.e. entities that will pay a very low price, and even the rumoured asking price of x0,67 Sales might be ambitious in this context, especially given the amount in absolute terms. On top of that are the risks associated with sharing a brand between two owners. How are categories defined, and who has the rights to new ones like balsamic sauce ? What happens if one side wants to sell the brand to a third party one day ?

Of course it’s not easy for Unilever to ‘bite the bullet’ and sell the whole business. They’ve invested a lot in the higher margins side of Bertolli - not only the spreads and pasta sauces, but also Mediterranean –themed snacks and even ready meals (note recent joint-venture with Greencore, reviewed in last month’s Glenboden).

On the other hand, there’s an undercurrent trend towards ethnic authenticity in the branded food world. Bertolli’s Italian provenance goes back to 1865, but Unilever can hardly claim to be Italian. Shouldn’t the group be focusing on more ethnically –neutral brands like Hellman’s ? In that case the group might be wise to sell the whole business, including exclusive rights to the Bertolli brand, to an Italian player that’s in a position to pay a significant premium. Barilla comes to mind quickly – Bertolli would complement and enhance its portfolio nicely; also the group might be refocusing on its core ethnicity after the Kamps debacle.

Just look at Unilever’s sale of Boursin – the brand returned to genuinely French ethnicity, with Groupe Bel being prepared to pay a high price for that.

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THIS LEAD'S VALUATION
Size (€ mln) 200
Sector culinary
Asset Quality global commodity
Seller large plc
Buyer private
P/S 0,67
P/Ebitda n/a
Type total consideration
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