Unilever may have denied it is mulling the sale of its traditional tea business, including PG Tips and Lipton, but not all City dealmakers will be convinced.

Rejecting claims by the The Telegraph that a sale was being considered, a Unilever spokeswoman said on Monday it was instead focused on turning around the tea brands. 

However, the company  stopped short of ruling a sale out in the future. And only last month, Unilever CFO Graeme Pitkethly called British tea drinkers a “dying breed” as he told investors the tea division’s performance in the third quarter had been hit by “subdued demand” in developed markets.

Disposal programmes are a “continual part” of Unilever’s corporate strategy, according to one City source, who told me they would not be surprised if the company had considered selling the unit “many times”.

“To maintain levels of growth appealing to shareholders, Unilever is quite good at continually picking up high-growth brands and carving out the slow growth ones,” they say.

“Black tea is a very low-growth category, so selling the division would just be a way for them to continue momentum and keep growth in the top line.”

Unilever has been outspoken about its strategy aimed at divesting underperforming divisions. And sales of black teabags are in decline. They fell 3.4% last year [Kantar 52 w/e 19 May] amid cooling demand from millennials and gen Z consumers on the lookout for exotic tastes and functional properties from their daily cuppas.

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PG Tips sales dropped £5.6m, or 5.4%, to less than £100m, losing the brand its spot as the nation’s bestselling tea – an honour that now goes to Twinings [Nielsen 52 w/e 7 September].

But if Unilever were to sell, who might be interested in buying the brands? 

A private equity buyer would be the most likely contender, says a City source. Unilever is no stranger to offloading underperforming divisions to PE firms. It’s what it did with its spreads business, including Flora, two years ago.

“I struggle to see a highly motivated trade buyer who would want a big tea brand,” the City source says. “The depth of the interest would come from private equity, no doubt. 

“When there is a structural decline, if feels like a stretch to me to have new corporates wanting to jump in and pick it up.”

However, another source argues that a trade sale remains possible, with big brands such as Pepsi, already linked to Lipton through a US joint venture in iced tea, likely to take a look at the prospectus.

One way to raise the level of interest, and the price tag, would be to throw premium herbal tea brand Pukka into the mix, since its sales have risen 16% to £22.8m last year [Nielsen 52 w/e 7 September].

But the source thinks Unilever unlikely to consider parting with Pukka, which it acquired just over two years ago, for precisely the same reason. “Pukka is a totally different play in hot beverages and it is still going strong, so I would be really surprised if they did not want that brand in the portfolio.”

What’s clear is that, in light of black tea’s performance, it will take hard work and innovation to achieve Unilever’s stated goal of turning around the UK’s once-favourite tea brand.

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