Kraft Heinz bids $143b for Unilever, but gets rejected

Firm says bid too low, sees no reason to discuss a deal without financial merit.

Reuters February 18, 2017

LONDON: US food company Kraft Heinz Co made a surprise $143 billion offer for Unilever in a bid to build a global consumer goods giant, although it was flatly rejected by the maker of Lipton tea and Dove soap.

A combination would be the third-biggest takeover in history and the largest acquisition of a UK-based company, according to Thomson Reuters’ data. It would bring together some of the world’s best known brands, from toothpaste to ice creams and combine Kraft’s strength in the United States with Unilever’s in Europe and Asia.

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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 US billionaire Warren Buffett and private equity firm 3G Capital, said it looked forward to talking terms, Unilever said it saw no reason to discuss a deal without financial or strategic merit.

In its offer, Kraft sought to provide assurances over maintaining its culture of innovation, recognising that this requires investment and acknowledged that there are limits to cutting costs, according to a source familiar with the bid who requested anonymity to discuss it.

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Kraft has also offered to keep three headquarters for the combined company in the United States, Britain and the Netherlands, the source added. Kraft also expects the combined company to be well-capitalised, so that its debt is rated investment-grade, according to the source. Kraft has until March 17 to make a final bid for Unilever under UK takeover rules.

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Unilever shares rose to a record following news of the offer, which analysts at Jefferies called a “seismic shock”, and closed 15% higher, short of Kraft’s $50 per share offer price, with the news lifting shares across the sector.

Unilever said Kraft’s proposal included $30.23 per share in cash, payable in US dollars, and 0.222 of a share in a new enlarged entity per Unilever share and represented an 18% premium to its share price on Thursday.

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“We believe Kraft will likely need to raise its offer substantially if it hopes to change the outcome,” RBC Capital Markets analyst David Palmer said in a research note. Kraft’s move could flush out other bidders for Unilever, but of the potential rivals, US consumer giant Procter & Gamble Co may face anti-trust hurdles, while pharmaceutical and consumer packaged goods company Johnson and Johnson would likely not be interested in household products.

Published in The Express Tribune, February 19th, 2017.

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