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Unilever (UL) to Sell AdeS Unit to Coca-Cola for $575M

Consumer products giant Unilever Plc UL recently reached an agreement with beverage giant Coca-Cola Co. KO and its largest Latin American bottler Coca-Cola Femsa SAB KOF to sell its AdeS soy-based beverage business for about $575 million, per media sources.

AdeS sells beverages that are a mix of fruit juice and soy. It has a presence in Brazil, Mexico, Argentina, Uruguay, Paraguay, Bolivia, Chile and Colombia.

The deal is a win-win for both the parties. For Unilever, it is in line with the company’s divestiture strategy to concentrate more on its personal care businesses. It is also attractive for Coca-Cola companies which have been looking to expand the sales of non-soda drinks and boosting its business beyond North America, its biggest market, where sales have been falling due to a consumer shift towards healthier beverages. In fact, with this deal, Coca-Cola will debut into soy-based beverages, thus diversifying further.

After the divestiture is complete, AdeS will be a part of the non-carbonated beverage business that Coca-Cola Femsa shares with Coca-Cola in its franchise territories.

We note that Unilever has been shedding off assets in its battered food business, as the category has been delivering sluggish growth due to a lack of innovation and declining demand. Demand has been weak due to saturated markets in the U.S., the company’s major revenue source.

In Jul 2014, Unilever sold its Slim-Fast brand to a middle market private equity firm - Kainos Capital, in accordance with its divestiture strategy. The divestiture included the sale of the Slim-Fast trademark and the global Slim-Fast business portfolio. In May 2014, the company completed the sale of its Ragu and Bertolli pasta sauces brands for $2.15 billion.

Not only this, the company has divested many brands in the past. In Feb 2014, the company sold its meat snacks business to Berlin-based Jack Link’s Meat Snacks and in January, Unilever sold its Royal pasta brand to RFM Corporation, one of the biggest diversified food and beverage companies in the Philippines.

In 2013, Unilever sold its Soft & Beautiful, TCB and Pro-Line Comb-Thru brands in the hair care category to an international hair care company – Strength of Nature; sold its Wish-Bone salad dressing business to food company Pinnacle Foods Inc. PF; sold Bertolli and P.F. Chang's frozen meals brands to ConAgra Foods Inc. CAG and its Skippy peanut butter business to Austin, MN-based producer of branded food and meat, Hormel Foods Corp. HRL.

These divestitures show Unilever’s commitment to focus on its personal care businesses, which have higher margins and higher growth prospects.

Unilever currently holds a Zacks Rank #2 (Buy).

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COCA COLA CO (KO): Free Stock Analysis Report
 
COCA-COLA FEMSA (KOF): Free Stock Analysis Report
 
UNILEVER PLC (UL): Free Stock Analysis Report
 
HORMEL FOODS CP (HRL): Free Stock Analysis Report
 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
PINNACLE FOODS (PF): Free Stock Analysis Report
 
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