Feb 18, 2017
Kraft Heinz withdraws as Unilever says 'no thanks' to $143bn bid
Feb 18, 2017
US food company Kraft Heinz dramatically (and "amicably") withdrew its surprise $143bn offer for Unilever Sunday after the maker of Dove, Tresemmé, Pond's, Simple and VO5 firmly rejected its approach.
The two issued a joint statement drawing a line under one of the shortest taleover approaches in mega-merger history.
A combination would have been the third-biggest takeover in history and the largest acquisition of a UK-based company (Unilever is based both in Britain and The Netherlands), according to Thomson Reuters data.
It would have brought together some of the world's best known brands, from toothpaste to ice creams, and combined Kraft's strength in the United States with Unilever's in Europe and Asia.
The global packaged food industry is grappling with slowing growth, new competition from upstart brands, deflation in developed markets and more health-conscious consumers.
Although Kraft, which is controlled by billionaire Warren Buffett and private equity firm 3G Capital, had said it looked forward to talking terms, Unilever said Friday it saw no reason to discuss a deal without financial or strategic merit. This raised the prospect of a potentially hostile bid but that did not happen.
Kraft had offered to keep three headquarters for the combined company in the US, Britain and The Netherlands, a source had said.
However there were major concerns in the UK after an earlier Kraft takeover (of Cadbury's) saw massive job cuts despite assurances to the contrary. Concerns among some eco-focused groups had also arisen due to Unilever's strong commitment to sustainability under current management that they feared could be at risk.
Kraft would have had until March 17 to make a final bid for Unilever under UK takeover rules. Unilever shares had risen to a record following news of the offer, which analysts at Jefferies called a "seismic shock", but they only closed 15% higher on Friday, short of Kraft's $50 per share offer price, with the news lifting shares across the sector.
Kraft's move had been expected to flush out other bidders for Unilever with the weak pound having made UK companies cheaper for foreign firms to take over. But of the potential rivals, US consumer giant Procter & Gamble Co would likely have faced anti-trust hurdles, while pharmaceutical and consumer packaged goods company Johnson and Johnson would likely not be interested in household products.
Unilever has struggled to grow as fast as shareholders would like recently amid challenging conditions and currency fluctuations. It saw its shares tumble 4.5% on January 26, its worst day in nearly a year, when the company reported lower-than-expected Q4 sales. The share plunge encouraged Kraft to make an approach, a source familiar with the matter said, asking not to be named because the matter is confidential.
Unilever has been hit by a slowdown in emerging markets, which it and other consumer companies have long relied on for growth, as well as in its home market, where consumers have been rattled after the Brexit vote.
Brexit pushed down the value of the pound, raising the cost of producing consumer goods in Britain and straining relations between the country's retailers and suppliers.
But it is important to remember that Unilever remains a massively successful firm whose sales and profits are generally rising and that its shares had been been very expensive with their recent tumble still making not reducing them to bargain status. In fact, it has been doing better than Kraft of late.
Unilever shareholders would have looked at Kraft-Heinz's own track record of boosting sales when evaluating whether the US group could help it cope with its own slowed growth and that record was not unblemished. Kraft's sales fell 3.8% to $6.86bn in the fourth quarter ending December 31, and its US sales, which account for more than 70% of its total, fell 3.1% to $4.84bn.
Kraft Heinz shares rose more than 10% in New York trading Friday, helping lift the Nasdaq to a record high.
3G READY TO DEAL
Although Kraft is smaller than Unilever, with a market value of $106bn as of Thursday, it is 50.9% owned by Buffett's Berkshire Hathaway Inc and 3G Capital, which also controls Anheuser-Busch InBev. 3G, known for driving profits through aggressive cost cutting, has orchestrated a string of big deals rocking the food and drink industry, including Anheuser-Busch InBev's takeover of SABMiller and the combination of Kraft and Heinz.
A deal would have offered opportunities to combine marketing, manufacturing and distribution in addition to cutting costs, but some industry analysts said Kraft might not have wanted to own Unilever's household and personal goods brands and could have spun them off.
Britain's largest union, Unite, represents employees at Unilever, according to its website. Unite had urged Unilever to continue fending off the takeover attempt to prevent job losses.
Unilever employs 168,000 people and generates roughly 17% of its revenue in the US compared with Kraft-Heinz, which generates roughly 78% in America.
Additional reporting by Sandra Halliday
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