* Structure like reverse Morris trust for tax benefits

-sources

* Unilever ( UL ) investors would get more than 50% of entity

-sources

* Spice maker McCormick's ( MKC ) M&A approach set it up for mega

deal

By Abigail Summerville, Andres Gonzalez and Alexander Marrow

NEW YORK/LONDON March 27 (Reuters) - A proposed

combination of Unilever's ( UL ) food business with U.S. spice

maker McCormick ( MKC ) would offer the British group's

shareholders a majority stake in the new entity and tax

benefits, two people familiar with the matter told Reuters.

Unilever ( UL ), the maker of Hellmann's mayonnaise and Knorr stock

cubes and one of the world's largest personal goods

companies, said last week it was in talks with McCormick ( MKC ) after

receiving an offer for its food division from the smaller group.

Cholula hot sauce maker McCormick ( MKC ) confirmed the talks,

without disclosing financial details, which pave the way for the

biggest ever shake-up at Unilever ( UL ), which has a $131 billion

stock market value.

Unilever ( UL ) and McCormick ( MKC ), which both declined to comment, are

structuring the proposed deal in a way that would give

shareholders in the London-listed group more than 50% of the

combined company, while avoiding a so-called change in control

that would trigger capital gains taxes, the people said, asking

not to be identified because the talks are private.

The proposed deal, the biggest for Fernando Fernández since

he became CEO last year, would involve spinning off Unilever's ( UL )

food business before selling it to Maryland-based McCormick ( MKC ). It

would be arranged like a so-called reverse Morris trust (RMT),

which saves on taxes, the two people said.

Talks are progressing quickly, the sources and a third

source said.

Although unclear how big a stake Unilever ( UL ) shareholders would

receive, similarly structured consumer goods deals have left the

seller's shareholders with 50% to 60% stakes in the new entity.

In 2021, for example, International Flavors & Fragrances ( IFF )

acquired DuPont's ( DD ) Nutrition & Biosciences

business in an RMT deal valuing the combined company at $45.4

billion and giving DuPont ( DD ) shareholders 55.4% of the new group.

In the 2000s, J.M. Smucker bought Jif and Crisco,

and later Folgers, from Procter & Gamble ( PG ) in all-stock RMT

deals that gave P&G investors roughly 53% stakes in Smucker.

Unilever's ( UL ) food unit is valued at between 28 billion euros

($32 billion) and 31 billion euros, including debt, Barclays

estimates. McCormick's ( MKC ) enterprise value is nearly $18 billion,

including around $4 billion of net debt, LSEG data shows.

This is typical of RMT structures, where the effective buyer

is significantly smaller than the seller.

MCCORMICK ADMIRED FOOD UNIT FOR YEARS

Unilever ( UL ) has been working with Goldman Sachs, two people

with knowledge of the matter said. One added that Morgan Stanley

and PwC are also advising on the potential separation.

Meanwhile, investment banks Citi and Rothschild are advising

McCormick ( MKC ), two of the people said.

Morgan Stanley, Goldman and Citi declined to comment. PwC

and Rothschild did not immediately respond to requests for

comment.

McCormick ( MKC ) has been watching Unilever's ( UL ) food business for

years, admiring its global reach and seeing opportunities to

grow under-appreciated brands in the sprawling conglomerate, one

of the people and two others familiar with the company said.

Spice maker McCormick ( MKC ) has been disciplined on M&A, giving it

flexibility to move fast when this potential deal was

possible. It had tried to buy Duke's mayonnaise maker Sauer

Brands and Japanese barbecue sauce brand Bachan's in recent

years, but lost out to higher bidders, the people said.

In 2017 it bought Reckitt Benckiser's ( RBGPF ) food division,

which included Frank's RedHot hot sauce and French's mustard.

Unilever ( UL ) spent more than a year separating out its ice cream

business, which was listed as The Magnum Ice Cream Company

in December.

It retained a 19.9% stake in the business after the deal,

which also had some tax benefits, such as reduced chargeable

gains for shareholders when part of their holdings were

converted into Magnum stock.