By Nimra Noor, International Business Editor
The American food giant, Kraft Heinz Co (NASDAQ: KHC) announced on Friday, February 16, a proposed $143 billion merger with Unilever in what would be one of the biggest deals ever. However, the Anglo-Dutch consumer goods giant has declined the offer, saying in a statement the proposal “fundamentally undervalues” the company.
In a statement to the London Stock Exchange, Unilever said, “The company rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions.”
Unilever shares surged 13 percent to a record in London, valuing the maker of Hellmann’s mayonnaise at more than 114 billion pounds ($142 billion) as it recommended shareholders to take no action.
“This is cheap money meeting industrial logic,” Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns shares of Unilever, told Reuters. “Kraft Heinz is attempting a massive push on the fast-forward button … to acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades,” he added.
Meanwhile, Kraft Heinz seemed to suggest it could follow up with another offer in a statement to the stock market, saying it was “working to reach agreement on the terms of a transaction,” although Unilever indicated that it saw no reason for further talks, in a statement of its own.
The American company, Kraft is backed by Brazilian private equity firm 3G Capital and Warren Buffett. Two years ago, H.J. Heinz owned by Buffett’s Berkshire Hathaway and 3G, announced a $45 billion takeover of Kraft Foods.
According to CNBC, a deal with Unilever, which had a market value of $125 billion before its shares spiked, would add Hellmann’s mayonnaise, Ben & Jerry’s ice cream, and Knorr soups to a portfolio that includes Heinz ketchup and Kraft Macaroni and Cheese.
Still, the addition of so many household products brands would add complexity to a business that was already narrowing its focus. On Wednesday, February 14, Kraft Heinz posted fourth-quarter sales that rose 1.6% excluding a variety of factors and said it now expected to find $1.7 billion in savings related to its 2015 merger, up from a prior target of $1.5 billion. CEO Berardo Hees said his company, the 79th largest U.S. advertiser, planned to focus globally on the three key brands: Heinz, Kraft, and Planters; on five categories: condiments and sauces, cheese, meals, nuts, and baby food.
Under U.K. takeover law, Kraft has until March 17 to make a formal offer. Unilever’s board will then make a recommendation and decide, together with shareholders, if the company should take the deal. Steve Clayton, fund manager at Hargreaves Lansdown, said Kraft would have to table a much higher bid to succeed. “A short-term premium today is no compensation for losing the growth that Unilever could produce for decades to come,” he said. “So to win over a majority of Unilever’s shareholders, we think Kraft Heinz will need to dig very deep indeed.”
If successful, the merger would likely be the biggest ever for a food and drinks company.
A version of this article appeared in the Tuesday, February 27th print edition.
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