Kraft Heinz Purchase of Unilever Could Lead to Personal Care Sale or Spinoff

Unlike Kraft Heinz, whose product portfolio consists predominantly of food and beverage, Unilever sells food, household and personal care products. Among its offering in the personal care sector are brands such as Dove soap, Sure deodorant and TRESemmé shampoo.

Kraft Heinz said Friday it had made an offer valued at $50 a share in a mix of cash payable in U.S. dollars and shares of the combined company. Unilever rejected the deal, stating that the 18% premium to its Thursday closing price undervalued the company and that it “does not see the basis for any further discussions.”

In 2016, personal care represented a large portion of Unilever’s revenues. Total revenues stood at €52.7 billion ($56.2 billion) of which personal care items contributed €20.2 billion.

Selling Unilever’s beauty products would help Kraft Heinz refocus Unilever on food, Mr. Kummer said.

It would also help in reducing some of the debt burden that the company would carry after a possible deal. Jefferies analysts forecast that the cash component of Kraft Heinz’s offer would increase net debt to 5.2 times earnings before interest, tax, depreciation and amortization, or ebitda. They calculate its 2016 net debt to ebitda ratio at 3.3.

Kraft Heinz’s offer could be targeted at Unilever’s food business only, Jefferies analysts said. “A more logical and financeable move would be for [Kraft Heinz] to acquire Unilever’s foods business,” Martin Deboo and James Letten wrote in their note.

Unilever’s food business has sales of around €12.5 billion and ebitda of €2.5 billion, Jefferies said.

Unilever and Kraft Heinz did not immediately respond to requests for comment.