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Why is Unilever (UL) Mulling Over the Buyout of Honest Co.?


Consumer products giant Unilever Plc UL has been focused on shaping its portfolio to deliver sustainable growth. With an aim to strengthen its position in the diaper business, Unilever is recently in talks to buy Honest Co., the consumer-products retailer co-founded by actress Jessica Alba, as per Wall Street Journal.

The European consumer products giant is interested in buying Honest for more than $1 billion, though talks are still in the early stages. Alba's green products company was valued at $1.7 billion last year, per reports.

Founded in 2011, Honest sells disposable baby diapers and other baby products. The company also sells household cleaners, along with personal-care and beauty products such as sunscreens and makeup.

However, Honest is facing several lawsuits claiming that the company’s products, which are advertised as ‘natural’ and ‘green’, contain chemicals. Another lawsuit stated that the brand’s sunscreen is not effective. Honest, however, has been denying these charges.

This acquisition would expand Unilever’s presence in the growing market for natural, green cleaning products as well as its diaper business.

UNILEVER PLC Price and Consensus

UNILEVER PLC Price and Consensus | UNILEVER PLC Quote

Notably, the Anglo-Dutch buyer has been on an acquisition spree since the last few quarters, especially in home care.

Last month, Unilever announced the acquisition of Stockholm-based Blueair. However, terms of the deal were not disclosed. Unilever’s acquisition of Blueair will benefit asthma patients as the purifier can remove allergens, thereby making it easier for them to breathe easily. The acquisition will also complement the company’s water purification business.

Further, on Aug 10, Unilever completed the purchase of Dollar Shave Club for about $1 billion, announced in July. Dollar Shave Club is a men's grooming brand, and this acquisition could prove particularly lucrative for Unilever, which does not own a direct-to-consumer men’s shaving product line yet, among its various properties.

We note that the company has been relying on deodorants and hair-care products to augment revenues this year, amid waning sales of its margarine and bread spreads. It also added personal care and other consumer brands, including Dermalogica and Kate Somervile, and the Zest soap brands, last year.

Apart from acquisitions, Unilever has also been shedding off assets in its battered food business. The category has been delivering sluggish growth due to a lack of innovation and declining demand. Demand has been weak due to saturated markets in the U.S. – the company’s major revenue source.

Unilever currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Some well-positioned consumer staple stocks include The Clorox Company CLX, Colgate-Palmolive Co. CL and Ingredion, Inc. INGR. All these stocks hold a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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