Investors in both Unilever and McCormick expressed immediate reservations on Tuesday after the companies disclosed plans to combine their food businesses in a deal valued at $65 billion. The market reaction was adverse: Unilever shares fell about 7%, erasing roughly $7 billion of market value, while McCormick shares slipped around 5%.
At the heart of investor concern is how the transaction is being executed. The companies said the deal will be implemented as a Reverse Morris Trust (RMT) - a structure that can provide tax benefits - under which Unilever will spin off its food division and then merge that entity with McCormick. Upon completion, Unilever and its shareholders will hold a 65% stake in the fully diluted combined company’s outstanding equity.
Market commentators highlighted several features of the arrangement that have left shareholders uneasy. Chris Beckett, a consumer staples analyst at Quilter Cheviot, said the initial market response had been poor and pointed to uncertainty over regulatory approval and the operational task of integrating an enlarged, complex food business. "Unilever shareholders will still own a large chunk of the newly combined food company," he said, adding that such a sizeable ownership block could act as an overhang for some time.
Analysts at RBC Capital Markets characterized the proposed structure as "hardly a clean exit," noting that Unilever shareholders would own 55.1% of the combined business while Unilever itself would retain a further 9.9% stake - figures that together align with the previously stated 65% total holding for Unilever and its shareholders.
Beyond structural objections, investors have for years urged Unilever to divest its food operations, citing a longer-term trend of consumers shifting away from packaged foods toward fresher options. More recently, the emergence of GLP-1 weight-loss drugs has been cited as another factor reducing demand for some packaged food categories. Competition from lower-cost private label alternatives has added to margin pressure in the sector.
McCormick’s chief executive Brendan Foley addressed the market reaction directly, saying he was not focused on short-term share-price fluctuations and that management takes a long-term perspective. He acknowledged current headwinds for the consumer sector and said McCormick remained confident in the underlying long-term rationale for the deal despite near-term pressures and geopolitical uncertainties.
Geopolitical tensions have already affected the broader consumer sector. The ongoing Iran war, now about a month old, has contributed to rising freight and energy costs, which in turn have put upward pressure on consumer inflation and dampened demand - developments that add to the immediate challenges facing packaged food companies.
Not all long-term investors were opposed to the strategy. Harsharan Mann of Aviva Investors said the transaction aligned with Unilever’s stated aim of sharpening its focus on beauty. Tineke Frikkee, a portfolio manager at W1M, described the strategic direction as logical but warned the separation could diminish economies of scale. BNP Paribas Equity Research senior analyst Max Gumport attributed McCormick’s share decline largely to investor concern and broader negative sentiment driven by a heavy cadence of large deal announcements in the sector, noting that large-scale mergers and acquisitions have had mixed success in consumer packaged goods.
Regulatory review is another important uncertainty. Under U.S. law, the Federal Trade Commission has a 30-day window from notification to decide whether to issue a second request for information, a step that can extend deal timelines as companies respond. While some recent food-sector transactions have closed without FTC challenges, former FTC chair Bill Kovacic suggested the Unilever-McCormick combination is likely to attract careful scrutiny because the agency is focused on mergers in industries that affect prices for U.S. consumers. He said firms that fall within the FTC’s defined areas of interest can expect closer examination and that regulators should be able to determine fairly quickly whether further inquiry is required.
The companies have indicated the deal is not expected to complete until mid-2027, a timetable that adds to investor unease about the length of time before the proposed combination is finalized.
What this means for markets and sectors
- Consumer packaged goods and food sectors will be directly affected by the outcome of this planned combination, as questions over demand trends and scale economics persist.
- Equity markets showed immediate negative sentiment for the two companies involved, reflecting concerns about deal mechanics, integration risk and regulatory delays.
- Regulatory and legal teams will be central to the timetable and feasibility of the transaction given the potential for an in-depth review by competition authorities.
Note: This report reflects statements and data provided by the companies and comments made by market analysts and former regulators. It does not introduce new facts beyond those presented by the parties and sources referenced.