Unilever UK warms up to frozen food disposal

News that Unilever UK Foods is reviewing its underperforming frozen food arm with a view to selling it off comes as no surprise, as rumours of a possible sale have surfaced several times over the past two years.

This time, however, the Anglo-Dutch consumer products giant could be serious about offloading the division, which includes the Birds Eye brand, as it is understood to have appointed broker Goldman Sachs to look into options for the group. The review could lead to the sale of all or part of the frozen food business, although the ice cream division, which includes brands such as Ben & Jerry’s and Wall’s, is unlikely to be affected.

The division has been struggling for some time as consumers shun products such as frozen ready meals in favour of chilled pre-prepared food. This trend has been seen across Europe, resulting in sales in the business falling from &£4.74bn to &£4.49bn last year.

City analysts agree that prospects do not look good for the frozen foods division, so it is difficult to identify potential buyers. Julian Hardwicke, a food analyst at ABN Amro, says: “There are not many food companies that would want to invest in frozen food at the moment. I don’t think that the market is in terminal decline, but it is not performing as well as other areas of the food market.”

If Unilever presses ahead with a sale, then the brands will join an already busy seller’s market. American food giant Heinz is in the middle of a strategic review of its frozen food and seafood business in Europe, which could lead to the sale of brands such as John West and Linda McCartney. Premier Foods is also reported to be looking at selling tea brand Typhoo following its &£172m acquisition of Marlow Foods, the owner of meat-free brand Quorn, in June.

Justin Scarborough, food analyst at Panmure Gordon, agrees that they are more sellers than buyers in the grocery market at the moment. “The candidate will probably be a company looking to consolidate a number of frozen food brands with a view to using the strong brands and carrying a big product review,” he says.

He says a venture capitalist is the most likely candidate and points to EQT, which acquired frozen food brand Findus in 1999 from Nestlé as an example of how this has worked in the past. The venture capitalist streamlined the portfolio of products and increased focus on the brands before selling it off to a former member of its Norwegian management team.

Scarborough says: “Companies such as EQT suit this kind of activity because it is about taking costs out, stabilising the portfolio and then focusing on the brands.” Which is exactly what he believes any buyer will do with the Unilever brands.

Analysts are working out what price Unilever could command for the division, but as Scarborough points out, any potential buyer will have to estimate how much investment the brands will need to drive growth, especially in view of the bleak prospects for the market.

He says: “Supermarkets will continue to have a frozen food aisle but it will become smaller and, in my view, there is no stimulus that is going to restart growth in this market.”

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