The $44.8 billion deal was blocked by regulations! Unilever (UL.US) and MKC.US (MKC.US) mergers and acquisitions may face in-depth scrutiny in the UK

The Zhitong Finance App learned that the deal worth 44.8 billion US dollars between Unilever (UL.US) and Meihaomei (MKC.US) is facing an in-depth investigation by British regulators. Unless the two companies propose remedies to allay regulators concerns about competition issues, the deal will go into a more in-depth review process.

The UK Competition and Market Authority (CMA) said on November 11 that according to the evidence currently available, Weihaomei's acquisition of Unilever's global food business may cause competition in the UK market to substantially weaken, involving the supply of dry ingredient mixtures and dried sauces to retailers. The CMA requires the two companies to submit committed measures by November 18 that can address related competition concerns; if an acceptable solution is not proposed, or if the regulators believe that the proposed measures are insufficient to dispel concerns, the deal will be transferred to the second phase of investigation.

UK regulators are concerned that competition in the two major sauce markets is weakening

CMA is concerned about the overlap between the two sides in the dry ingredients and dry sauce markets. According to the summary of the first phase of the survey published by the CMA, Weihaomei sells dried ingredient mixtures and sauces in the UK through the Schwartz brand, and operates condiments and sauces through brands such as French's; Unilever's food business sells related food products through brands such as Knorr (Knorr), Maille, and Colman's.

CMA believes that in the field of dry cooking ingredient mixtures and dried sauces, the two sides are currently closely competing with each other. Once the deal is completed, the two largest brand suppliers will merge, and the new company will become a far leading supplier to the UK dry ingredient blends and dry sauce market. Although the supermarket's own brands and other brands can still form certain competitive restrictions. For example, Maggi is competitive in the dry ingredient mixture market and Bisto in the dry sauce market, the CMA believes that these competitors and other products have limited restrictions on the merged company.

At the same time, the CMA notes that there are high barriers to entry in the dry ingredient blends and dry sauce markets. Supermarket shelf space is limited, and existing suppliers have established a solid market position, making it difficult for new companies to enter the market or expand their business scale. Regulators also did not find significant growth in relevant markets that would attract new competitors or drive existing competitors to scale up.

Notably, the CMA did not raise the same competitive concerns about the two sides' overlapping businesses in the wasabi market. The investigation found that the Delicious French's brand mainly sells American-style mustard, while Unilever's Colman's and Maille sell English and French mustard respectively. Since consumers do not usually regard different types of mustard as products that can replace each other, supermarkets need to supply these different types of products separately, so the CMA divides them into different product markets, and believes that there is no substantial competition between the two sides in this field.

This judgment also drew attention to Unilever's previous plans to sell the Colman's brand and related assets. Unilever said that as early as August of this year, the company decided to sell the Colman's brand and related assets to the market to proactively address potential competitive concerns, and negotiations with potential buyers are progressing smoothly. However, the main competitive issues clearly identified by the CMA this time focus on the dry ingredient mixture and dry sauce market rather than the mustard market, so it remains to be seen whether the sale of the Colman's brand can meet all the requirements of the regulators.

The $44.8 billion deal is being tested

The decision could set up a regulatory hurdle for this ambitious deal. The deal was the largest in the history of the two companies, but regulators also provided a way for both parties to avoid further investigation. The merger is expected to make Unilever a leading company in the global beauty, personal care and home care industry, and promote Weihaomei to become a leading company in the global packaged food industry.

According to the agreement, Mei Haomei agreed to pay 15.7 billion US dollars in cash, and Unilever and its shareholders will receive 65% of the combined company's shares. The deal valued Unilever's food business at around $44.8 billion. Unilever shareholders will hold 55.1% of the combined company's shares, while Unilever itself will retain 9.9% of the shares.

The two sides also expect that this integration will bring about a cost synergy of about 600 million US dollars per year, which is expected to be fully realized by the end of the third year after the transaction is completed after deducting reinvestment for business growth. In addition, the two sides are also expected to generate additional cost and revenue synergies of approximately $100 million, and reinvest this revenue into business growth. The synergy mainly comes from the integration of management and support functions, expansion of procurement scale, and optimization of manufacturing and logistics networks.

From a strategic perspective, the deal is part of Unilever CEO Fernando Fernandes's strategy to drive the company's business focus. He wants to focus the consumer goods company on beauty, health, personal care and homecare businesses, and believes these businesses have stronger prospects for structural growth. After divesting its food business, Unilever will become a company focused on beauty, health, personal care, and home care, thereby investing more resources in categories with greater potential for growth.

Unilever expects its beauty, health and personal care business to account for approximately 67% of the group's turnover after the transaction is completed, from about 51% in 2025. The company also plans to use $15.7 billion in cash from the transaction to offset one-time costs related to business spin-offs and taxes, reduce debt, and support an estimated total share repurchase plan of 6 billion euros between 2026 and 2029.

For Meihaomei, this acquisition is expected to significantly expand its global business scale and further strengthen its competitive position in the condiment market. Brands such as Knorr and Holomon under Unilever's food business have extensive global influence, complementing Weihaomei's own spice, seasoning and sauce business.

The transaction is expected to be completed in mid-2027, but is still subject to Weihaomei shareholder approval and approval from relevant regulators, as well as other customary delivery conditions. The UK CMA's decision means that both sides must not only continue to push forward regulatory approvals in other jurisdictions, but must also come up with persuasive remedies within the time period set by the UK regulators. If no agreement can be reached, the second phase of the investigation may further lengthen the transaction approval cycle and bring more uncertainty to this large-scale food industry merger and acquisition.