21.02.2017

Kraft Heinz $143 Billion Takeover Bid Rejected By Unilever

Amid a broad retreat by a whole roster of traditional CPG companies, and rapid consolidation in a no-growth industry, the No. 5 player in global packaged food, Kraft Heinz, made a bid for No. 4 Unilever in a breathtaking gambit that would lurch the trade into its biggest adaptation yet to the industry’s stubborn new realities.

UK-based Unilever quickly rejected Kraft’s $143 billion—or $50 a share—takeover offer as without financial or strategic merit. But Kraft Heinz, which is majority-owned by 3G Capital and Warren Buffett’s Berkshire Hathaway holding company, said it looked forward to “working to reach agreement on the terms of a transaction.”

Brazil-based 3G was behind the Kraft Heinz combination and the consolidation of AB InBev and SABMiller in the past few years. If such a behemoth eventually came together, the Kraft Heinz-Unilever combination would comprise the third-largest takeover in history, the second-biggest merger across national lines, and the biggest-ever acquisition of a UK-based company. It would create efficiencies in manufacturing, purchasing and back-office costs, of course. And it would create a vast stable of brands that would include Unilever’s Dove soap, Ben & Jerry’s Ice Cream, Vaseline, Hellmann’s Mayonnaise, Lipton Tea, and Axe and Lynx body-care products with Kraft Heinz’s Oscar Mayer meats, Heinz Ketchup, Jell-O and Kraft Macaroni & Cheese.

“Kraft Heinz are attempting a massive push on the fast forward button,” Steve Clayton, analyst at Hargreaves Lansdown in the UK, told Reuters. “To acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades.” Even if it doesn’t go through, the deal underscores some important dynamics that continue to afflict the food and beverage business worldwide. These include the leveling off of growth in many emerging markets where Unilever is particularly strong, deflation in developed markets, higher commodity prices, fluctuating currency rates and—perhaps most important of all—the clear change in eating habits by consumers worldwide who are increasingly favoring startups’ better-for-you products over the traditionally processed fare where CPG giants made their fortunes. Nestle, for example, just acknowledged that it won’t meet its previous organic growth sales targets for at least the next three years.

In addition to consolidating what they’ve built, the big CPG companies are also scrambling to figure out what innovations and startups are worth their own investments, as they acquire startups and equity stakes in them at record levels. One of the most active in this area, General Mills, just reported a lower sales and profit forecast for the current fiscal year, based largely on poor performance by Progresso soups and Yoplait yogurts. Just one day before making the offer for Unilever, Kraft Heinz executives had been saying their biggest plans for this year involved improving the performance of the three key Heinz, Kraft and Planters brands as well as five global product categories: condiments and sauces, cheese, meals, nuts and baby food.


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