Unilever has confirmed it has been approached by US food company, McCormick, in regard to a potential sale or merger of its foods business.

The fast-moving consumer goods firm said it believes foods is a “highly attractive business”, with a strong financial profile led by brands including Hellmann’s, Colman’s and Marmite, and it is confident in the future of the business being part of the company.

Unilever said it is in discussions with the American company, but there can be no certainty hat any transaction will be agreed.

Following the announcement, shares in Unilever increased by just over 1%.

Consumer staples analyst at Quilter Cheviot, Chris Beckett, stated that while both companies would see strategic logic in such a transaction, the mechanic of combining assets of such different scales would be far from straightforward.

He concluded: "Unilever has spent many years gradually shifting its focus towards faster growing, higher margin household and personal care products, but the slow progress towards a pure play company has frustrated investors.

"The food business remains a sizeable operation and is worth around 25% of Unilever’s value, generating around $15bn in revenue and $3.4bn of earnings before interest and taxes, with Hellmann’s and Knorr products accounting for a combined 60% of this. This dwarfs McCormick’s operations, which focuses on spices and condiments. This gap in scale, alongside McCormick’s present gearing of 2.7x, means any deal would likely be complex.

"For Unilever, the loss of food would be margin dilutive at the outset, but it could free up capital for expansion in beauty or over the counter health, where management sees greater long-term potential. Even so, investors will be wary of execution risk in anything other than a clean sale."

---