'Unilever Shareholders To Hold Majority Stake In Potential McCormick Food Deal, Sources Say' - Reuters

Structure like reverse Morris trust for tax benefits -sourcesUnilever investors would get more than 50% of entity -sourcesSpice maker McCormick's M&A approach set it up for mega dealNEW YORK/LONDON March 27 (Reuters) - A proposed combination of Unilever's ULVR.L food business with U.S. spice maker McCormick MKC.N would offer the British group's shareholders a majority stake in the new entity and tax benefits, two people familiar with the matter told Reuters.Unilever, the maker of Hellmann's mayonnaise and Knorr stock cubes and one of the world's largest personal goods companies, said last week it was in talks with McCormick after receiving an offer for its food division from the smaller group.Cholula hot sauce maker McCormick confirmed the talks, without disclosing financial details, which pave the way for the biggest ever shake-up at Unilever, which has a $131 billion stock market value.Unilever and McCormick, which both declined to comment, are structuring the proposed deal in a way that would give shareholders in the London-listed group more than 50% of the combined company, while avoiding a so-called change in control that would trigger capital gains taxes, the people said, asking not to be identified because the talks are private.The proposed deal, the biggest for Fernando Fernández since he became CEO last year, would involve spinning off Unilever's food business before selling it to Maryland-based McCormick. It would be arranged like a so-called reverse Morris trust (RMT), which saves on taxes, the two people said.Talks are progressing quickly, the sources and a third source said.Although unclear how big a stake Unilever shareholders would receive, similarly structured consumer goods deals have left the seller's shareholders with 50% to 60% stakes in the new entity.In 2021, for example, International Flavors & Fragrances IFF.N acquired DuPont's DD.N Nutrition & Biosciences business in an RMT deal valuing the combined company at $45.4 billion and giving DuPont shareholders 55.4% of the new group.In the 2000s, J.M. Smucker SJM.N bought Jif and Crisco, and later Folgers, from Procter & Gamble PG.N in all-stock RMT deals that gave P&G investors roughly 53% stakes in Smucker.Unilever's food unit is valued at between 28 billion euros ($32 billion) and 31 billion euros, including debt, Barclays estimates. McCormick's enterprise value is nearly $18 billion, including around $4 billion of net debt, LSEG data shows.This is typical of RMT structures, where the effective buyer is significantly smaller than the seller.