Unilever to Retain Several Regional Tea Brands

UK

Unilever has concluded a business review of its tea brands and will proceed with the sale of Lipton Yellow Label, PG Tips, TAZO, and several regional tea brands. Excluded from the sale are tea brands based in India and Indonesia as well as US ready-to-drink brands in joint ventures with PepsiCo. The tea division generated $3.3 billion last year. The segment Unilever retained is valued at $1 billion, according to analysts.

Hindustan Unilever (HUL) reported 52% growth year-on-year according to a report in the Business Standard. Sales of tea account for 80% of the company's annual revenue. The HUL portfolio includes Brooke Bond Red Label, Taaza, Taj Mahal, and Lipton green tea.

The remaining tea ventures, including Bushell's and T2 in Australia, and Pukka Herbs, a profitable UK line of tisanes, are included in the transaction. According to Bloomberg News, six or more global buyout firms indicated interest. Unilever said the demerger would conclude by the end of the 2021 calendar year.

“The balance of Unilever’s tea brands and geographies and all tea estates have an exciting future, and this potential can best be achieved as a separate entity. A process will now begin to implement the separation, which is expected to conclude by the end of 2021,” the company said in a release.

The Anglo-Dutch multinational is experiencing slow growth, leading to a restructuring that includes consolidating its headquarters in the UK. Bidders are likely to include KKR & Co.; Cinven, a European-based global private equity firm headquartered in London; and Bain Capital, a Boston-based equity investor with more than $100 billion of capital and stakes in Burger King, Domino’s Pizza and Dunkin’ coffee and donuts.

In 2017, KKR purchased Unilever’s $8 billion margarine and spreads business. Others mentioned in press accounts include Blackstone, Advent International, New York-based Clayton Dubilier & Rice, and Jacobs Holding AG in Zürich.

The combined portfolio includes Lipton Yellow Label, PG Tips, Lyons, Brooke Bond Red Label, TAZO Tea, Pukka Herbs, Bushell’s, Red Rose, T2, Sariwangi, Saga Tea. Lan-Choo, Choysa, Joko, and Pure Leaf and assorted joint ventures featuring ready-to-drink variations with bottlers like PepsiCo.

In January, Unilever c.e.o. Alan Jope announced in frustration that the massive but slow-growing tea segment was under review. Lipton Yellow Label generates more than $1 billion in sales annually, but commodity blends are in decline as consumers abandon tea for coffee, switch to better-tasting tea, or substitute herbal infusions, or green tea for traditional black tea blends. Last year, Twinings overtook PG Tips as the UK’s best-selling tea brand.

A unified structure will streamline Unilever’s ability to attract investors, making it easier to complete mergers and acquisitions. Consolidation could also make an initial public offering for the tea division a possibility, but quick turnover favors a private equity sale. Unilever earns 40% of its annual revenue from food and beverages and 60% from household and personal products. It is rumored to be eyeing Colgate-Palmolive Co., following the successful acquisition of Dollar Shave Club. Colgate-Palmolive generated $15.5 billion in sales in 2018.

Unilever successfully halted an unwanted bid by Kraft Heinz Co. in 2017 and needs to bulk up as Nestlé, and other global competitors continue to expand. In the most recent quarterly financial report, Nestle posted its highest growth in five years, the result of nimble acquisitions and disposals. In contrast, Unilever failed to achieve any sales expansion in the first quarter.

Unilever predicted a deep global recession will severely impact pricing as COVID becomes "a permanent feature."

"We believe that talk of a quick recovery is definitely at the optimistic end of the scale. A deep global recession has already started and consumer habits are changing quite dramatically," according to the company.