LONDON, U.K.: Unilever is combining its food business with spice maker McCormick in a deal valued at about US$65 billion, marking one of the largest transactions ever in the sector and a major shift in the consumer goods group's strategy.

The merger is the biggest move yet by CEO Fernando Fernandez since he took over in March 2025, following last year's spin-off of Unilever's ice cream division, which includes Ben & Jerry's and Magnum.

While Unilever's food unit is a high-margin business, its growth has lagged behind the company's personal care and beauty segments, weighing on the group's broader target of four percent to six percent sales growth. Underlying sales in the division have repeatedly fallen short of that goal since pandemic-era highs.

Investor pressure to streamline the portfolio has been building since activist shareholder Nelson Peltz disclosed a stake in 2022. Peltz has been linked to leadership changes at the company, with Fernandez promoted to sharpen focus on higher-growth areas.

Shares in Unilever fell three percent to a near one-year low after the announcement, while McCormick shares dropped nine percent as trading opened on Wall Street, reflecting concerns about the deal's structure.

"Why is Unilever disposing of a business dominated by two brands, of which it owned 100 percent, for a minimal control premium and leaving its shareholders with a 55 percent shareholding in a sprawling food business?" RBC analyst James Edward Jones said, referring to Knorr stock cubes and Hellmann's mayonnaise.

The companies said the deal will be structured as a Reverse Morris Trust, under which Unilever will spin off its food division and merge it with McCormick, the maker of Cholula hot sauce. The structure offers tax advantages and makes it the largest such transaction involving a European company.

Unilever and its shareholders will hold a 65 percent stake in the combined entity, equivalent to $29.1 billion based on McCormick's recent share price. Unilever will also receive $15.7 billion in cash. The agreement values Unilever's food business at nearly $45 billion and McCormick at about $21 billion, excluding certain assets such as Unilever's operations in India.

"It's true that it will leave Unilever as a pure-play (household and personal care) business, but this does not strike us as a smooth way of bringing it about," RBC's Jones added.

Unilever's roots in food date back to the 19th century, and the segment still accounted for just over a quarter of its 50.5 billion euros in annual sales last year and a significant share of its global workforce.

"The deal will be transformational for McCormick, but incremental for Unilever," said Chris Beckett, consumer staples analyst at Quilter Cheviot, a Unilever investor. "McCormick gets global scale and distribution, particularly in condiments, and hopefully gets better sales growth from Unilever's brands."

In recent years, Unilever has been reshaping its portfolio as consumer preferences shift away from packaged foods toward fresher options. The rise of GLP-1 weight loss drugs and competition from cheaper private-label products have further pressured demand.

The company has already sold several non-core food brands, including Graze and The Vegetarian Butcher, as part of a broader strategy to streamline operations.

"There is logic in a disposal of the food business where volumes have been muted over the past years," said Harsharan Mann, a portfolio manager at Aviva Investors. The Reverse Morris Trust model is "sensible" given tax challenges in similar deals, she added.

"Global peers such as Procter & Gamble have successfully used this structure in prior years for disposals of non-core businesses in a tax-free structure.

"The deal comes alongside an ongoing cost-cutting programme aimed at saving around 800 million euros over three years. It was reported that Unilever has also implemented a global hiring freeze for at least three months amid the widening conflict in the Middle East.