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Unilever to Sell Sauce Brands to Mizkan for $2.15 Billion

Unilever (UNA) has said ciao to its Ragu and Bertolli pasta sauce business, agreeing to unload it to Japanese food manufacturer Mizkan Group for about $2.15 billion as the maker of Dove skin creams continues to shed food brands.

The deal transfers Ragu, the best-selling U.S. pasta sauce that helped popularize Italian food in America, into the hands of a closely held Asian company founded 210 years ago. Together, the brands have annual sales of more than $600 million, London-and Rotterdam-based Unilever said today in a statement.

Under Chief Executive Officer Paul Polman, Unilever has focused on its health and beauty business while selling slower-growth food brands, mainly in the U.S. For Mizkan, the deal, its largest ever, enhances its North American exposure, which it has been growing via acquisitions to reduce its reliance on a shrinking population in Japan.

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“The deal is the tip of the iceberg of upcoming Japanese food and beverage makers’ outbound acquisitions to counter slowing domestic demand,” said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo.

Rice Wine

The food company, based in Japan’s Handa City, makes condiments including mustards and rice wine. Mizkan unveiled a five-year plan in January, saying it needs to expand overseas as the Japanese population shrinks. The company was founded in 1804 to make vinegar from the leftovers of sake production.

Photographer: Daniel Acker/Bloomberg

Unilever's Ragu brand pasta sauce sits on display in a supermarket in Princeton, Illinois, U.S. Close

Unilever's Ragu brand pasta sauce sits on display in a supermarket in Princeton, Illinois, U.S.

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Photographer: Daniel Acker/Bloomberg

Unilever's Ragu brand pasta sauce sits on display in a supermarket in Princeton, Illinois, U.S.

In 2005, Mizkan bought Holland House cooking wines and in 2011 it purchased Border Foods, a processor of hot peppers. Mizkan has also expanded in Britain, acquiring the Branston range of pickles and sauces from Premier Foods Plc earlier this year. Today’s deal includes two U.S. production facilities.

The purchase will allow Mizkan to get a majority of its revenue from abroad, compared with 34 percent in the year through February, Misato Kimata, a spokeswoman, said by phone.

The sale price represents a “healthy” multiple of 3.5 times sales, said Graham Jones, an analyst at Panmure Gordon. The after-tax proceeds for Unilever will be about 1 billion euros ($1.4 billion), he said in a note.

“Unilever needs to now demonstrate that with an improved performance in spreads it can reduce the growth drag from its foods division,” Jones said.

The maker of Axe body spray and TRESemme shampoo is the world’s leading maker of spreads like Flora and Country Crock, but unit sales in the division that includes spreads have declined for seven straight quarters.

Shrinking Food

Unilever’s food unit, which does not include its tea and ice cream business, accounted for 35 percent of sales in 2008, the year before Polman took the helm. Today, it’s 27 percent.

“This sale represents one of the final steps in reshaping our portfolio in North America,” Kees Kruythoff, president of Unilever’s business in that region, said in a statement. Unilever is still looking to sell its Slim-Fast diet food business, which it put under review along with the pasta brands earlier this year.

Founded in Rochester, New York, in 1937 and acquired by Unilever in 1987, Ragu accounts for about 40 percent of Unilever’s $1.2 billion pasta-sauce sales, according to data tracker Euromonitor International. Sales have declined 18 percent since 2009, hurt by the encroachment of private-label sauces, which now account for about one quarter of the market.

Biggest Sauces

The $2.6 billion North American pasta sauce category has grown by only 1.3 percent since 2009, according to Euromonitor. Still, Ragu is the best-selling sauce in the U.S., with 25 percent of the market. Campbell Soup Co.’s Prego brand is second with 17 percent. Bertolli is the second-largest brand in the U.S. premium pasta sauce market, Mizkan said.

Unilever said it expects to conclude the transaction by the end of June. Part of the proceeds will go to its 715-million pound ($1.2 billion) acquisition of share rights left in family trusts by one of the company’s founders nearly a century ago, which simplifies its stock structure, spokeswoman Lucila Zambrano said. Unilever announced that purchase three days ago. The company will also look for bolt-on acquisitions, she said in an e-mail.

Unilever sold Ragu in the U.K. in 2011, Skippy peanut butter and Wish-Bone last year, and its European meats business including the Peperami brand in February. It will continue to sell pasta sauces under the Raguletto brand in Finland, South Korea and other countries, and under the Knorr brand in Europe, Zambrano said.

Shares of Unilever fell 0.7 percent to 31.72 euros at 12:03 p.m. in Amsterdam.

Goldman Sachs Group Inc. advised Mizkan. Unilever hired Morgan Stanley to sell the sauces business, a person familiar with the matter told Bloomberg.

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Thomas Mulier, Kim McLaughlin

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