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Textbook theory — aided and abetted by investment bankers — favours corporate break-ups. Goodbye conglomerate discount, the putative shortfall plaguing multipronged companies that trade below the sum of their parts; hello dedicated management, capital allocation and strategic direction.
The early verdict on Europe’s latest disposal falls somewhat short of that orthodoxy. Unilever, maker of consumer products such as Dove shampoo and Marmite spread, on Monday spun off its ice cream unit on a trio of exchanges. That demerger scooped close to €9bn in market value from Unilever on Monday afternoon as its shares fell 7 per cent, while the 80 per cent of the newly listed Magnum Ice Cream Company handed to its investors was on Monday worth only €6.3bn.
It is early days and, at least in the northern hemisphere, hardly the height of ice cream season. Still, that values MICC at a fairly modest multiple of 8.2 times this year’s ebitda. In the absence of pure-play comparisons — the number two rival, Froneri, is jointly held by food group Nestlé and private equity — management opts to compare the Magnum maker with snack makers. Those comparisons are not flattering. Chocolate maker Hershey, for instance, trades at more than twice the multiple on S&P Capital IQ estimates, aided in part by superior margins.
What MICC does share with these peers is fickle customers, including those on appetite-suppressing medications, and volatile raw material prices. Cocoa, which together with chocolate accounts for almost a quarter of its raw materials costs, rose 375 per cent in the three years to December last year — and MICC will no longer have recourse to Unilever’s treasury for hedging. On top of that, dealing with agricultural commodities often entails taking on political and sustainability risks.
Technical factors may keep share price gains in check. Unlike its parent, the smaller ice cream maker will not feature in key indices and thus will not be a must-buy for passive fund managers. There is an overhang from Unilever’s residual holding, which it will dispose of within five years.
Still, MICC may be a taste that comes to grow on investors. The company has been operationally unleashed from Unilever for several months now, and lifted sales 5 per cent in the first half of the year. New management wields the reins — more than 90 of the top 100 staff took up their positions in the past two years — and may well deliver the promised 3 to 5 per cent growth and an additional 0.4 to 0.6 percentage points to ebitda margins.
As for Unilever itself, it has shed a company that, in 2024, underperformed and which, due to refrigeration, requires more complex distribution. From that perspective, the licking meted out on Monday looks overdone.
louise.lucas@ft.com
