Ice Cream Truck: ice cream maker Magnum Ice leaves Unilever for the stock exchange

On December 8, shares of Magnum Ice Cream, spun off from Unilever, will start trading in New York, London and Amsterdam. This is not a classic IPO, but a spin-off: that is, Unilever shareholders will receive the securities, and they will already offer them on the stock exchanges. Last week Magnum Ice Cream issued an investment memorandum. We have read it and tell you what you should pay special attention to if you are thinking about buying shares of the largest ice cream manufacturer

Unilever, one of the largest players in the FMCG market, has announced its intention to spin off its ice cream business into a separate company in March 2024. Ice cream is too different from everything else: a specific, seasonal, freezer-intensive business. The idea was to spin off the more than 100 brands owned by Unilever and about 30 factories into a separate company and show better results.

Magnum Ice Cream has undergone a giant transformation in a year and a half. It has a 21% share of the €75 billion global ice cream market. Its biggest brands are Heartbrand, Magnum, Ben & Jerry's and Cornetto. It employs about 20,000 people and owns 3 million freezers. It is the leader in almost all markets: in European countries, in Turkey and in the US. And ranks second in China and India.

This entire global ice cream factory earned €8 billion in revenue, €1.3 billion in adjusted EBITDA and €595 million in net income in 2024.

Now its shares will be available to investors, but not as a result of a classic IPO, but as a result of a spin-off with simultaneous listing. That is, Unilever shareholders will receive Magnum Ice Cream shares in addition to their shares and can offer them for sale through their brokerage accounts. The transaction provides for the transfer of one Magnum Ice Cream share for every five Unilever shares.

The largest shareholders of Magnum will be Unilever itself 19.9%, and fund management companies - Blackrock (6.7%) and Vanguard Group Holdings (4.3%). If not to take into account the part of shares, which will go to the bonus program for the company's management, the minority shareholders will have just under 70% of shares ready for sale.

The legal new company is organized as follows: The Magnum Ice Cream Company N.V., a holding company in the Netherlands, owns two companies through its subsidiary. One is Dutch, and the second is American, registered in Delaware. And already underneath them are ice cream manufacturing companies in different countries, which used to be part of Unilever.

The business is large-scale, so it's not easy with asset allocation. Unilever had to split the business globally. If the company had a pure ice cream business, Unilever simply transferred its shareholdings to Magnum. Some of the companies in the Unilever group, those that were not just in the ice cream business, had to spin off those assets, and transfer them to Magnum's balance sheet with all the liabilities. This whole process is still not complete.

There are three countries where deals should take place after the listing. These are Indonesia, Portugal and India. In Indonesia, the shares of Unilever's "subsidiary" were listed on the stock exchange, and their consolidation required the consent of other shareholders, including minority shareholders. A similar story in India, where Magnum's expenses amounted to €300 million. In Portugal, Magnum had to spend €165 million to buy out assets. At the same time, the company in the memorandum refuses to guarantee that these transactions will be completed.

In addition to the costs of consolidating assets, there are also the costs of creating Magnum itself. Judging by the memorandum, they amount to about €800 million. 55% of the costs of the separation falls on IT. So far, the company is being assisted in IT by Unilever. But Magnum will have to develop and implement its own RP-system and other software to modernize and standardize information systems.

To do all this, the company has racked up debt. It has €4 billion in term loans to replenish working capital, settle its financial debt to Unilever and carry out the transactions described above. And on top of that, the company issued €3 billion in bonds in December.

The borrowed money is needed to maintain operating liquidity and also to complete the reorganization.

In its prospectus, the company points out a large number of different risks - 56 points. Some of them are worth paying special attention to. For example, those concerning the transition to its own IT system. Magnum warns investors about possible failures and a possible increase in the cost of implementing the entire IT system. The process itself will take two to three years.

In addition, due to the sheer number of businesses in different parts of the world, the company warns of various tax and legal risks in the ongoing process of business separation - these will have to be addressed if they arise.

There are other risks associated with Magnum's process organization. "The Group needs to establish or expand its own corporate functions, including infrastructure, insurance, logistics, quality, compliance, finance, human resources, benefits administration, procurement support, information technology, legal services, corporate strategy, corporate governance, other professional services and general commercial support functions," Magnum Ice Cream lists.

A separate systemic problem is one of Ben & Jerry's key brands. When its founders Ben Cohen and Jerry Greenfield sold the company to Unilever in 2000, it agreed to maintain the ice cream maker's social mission. This includes, for example, support for LGBTQ+ people or the fight against climate change. Under the agreement with Unilever, the company has an independent board.

But last year, Unilever stopped Ben & Jerry's from publishing pro-Palestinian statements, donating money to anti-Israel left-wing radicals, and buying Palestinian almonds for ice cream. For which he got sued. One of the founders, Greenfield, left the company. "If Ben & Jerry's board of directors, individually or collectively, decides to pursue or promote certain social initiatives (as they have done in the past), it could result in increased costs, negative press coverage, or legal or operational problems," Magnum reports.

As a result of all these risks, and the way the shares are offered, they could fluctuate wildly, the company warns. This is also because the spin-off will result in them being transferred to Unilever shareholders free of charge. In addition, Unilever has no obligation not to sell its stake. "The sale of a substantial number of Unilever shares in the public market, or the suggestion that such sales may occur, could reduce the market price of the shares and impair the ability to raise capital," the company writes.

Bottom line: the company is approaching the spin-off without having finalized the separation deal, with a pile of potential legal issues and with a rather large level of debt at the level of annual revenues.

The company has no analogues, it is unique in its specialization exclusively in ice cream. It can only be valued by taking into account the multiples of the same sector - products and manufacturers of goods, which includes Unilever. Unilever's capitalization is $145 billion, and its ice cream business generated 13.6% of revenue before separation by 2024. Applying the same P/S multiples as Unilever, Magnum Ice Cream could be worth about $20 billion or €17 billion.

But Unilever has multiples above the market. According to Seeking Alpha, for the "consumer goods" sector, which includes Unilever, the P/E ratio is 21.5 and EV/EBITDA is 10.9. By these metrics, Magnum Ice Cream could be worth €12.9 billion to €14.2 billion, and the price for each of the 629 million shares issued is about €21 to €23 or $25 to $27. If the Unilever shareholders who received Magnum Ice Cream shares do not organize a sale.

Does not constitute an investment recommendation

This article was AI-translated and verified by a human editor