Kraft-Heinz/Unilever- A Close Shave

Fram Hansotia

Kraft Heinz’s proposed £114bn bid for consumer products giant Unilever has fallen through under alleged pressure from the British Government, with conflicting reports about whether Unilever rejected the bid, or Kraft Heinz “amicably” withdrew it. It would have been the second largest deal in history, creating the world’s largest consumer goods company and uniting brands like Heinz ketchup, Marmite, Knorr, Dove, and Hellmann’s. Bloomberg Intelligence estimated it would have created a company with a market value worth approximately £250 billion out of the £1 trillion global packaged food index.

 

After crisis talks held on Sunday, 19th February, the companies were forced to agree that the deal could not be completed within the 28-day period stipulated by UK takeover laws. Despite the companies’ financials making a deal a possibility, the political uncertainty caused by upcoming elections in Netherlands, where Unilever is listed, could also have complicated a difficult negotiation.

 

It can be inferred that the initial idea of merging was based upon the increased strength of a single, unified company making it easier to weather the tough conditions that retailers and producers of consumer goods are dealing with. Another influencing factor for Kraft could have been the increased exposure to Unilever’s presence in emerging markets.

 

However, analysts focused on the stark differences in the organisational cultures, with Unilever’s commitment to corporate social responsibility and long-term growth, compared to 3G’s merciless attitude to profit maximisation, focused on making employees redundant and cost minimisation. Industry experts have suggested that the bid was an “opportunistic approach” by Kraft to use Unilever’s consistently strong balance sheet to finance its own takeover. 70% of Unilever’s shareholders are long-term investors (held shares for more than seven years), and were sceptical of the proposed benefits of the deal, as Kraft Heinz’s credit rating is five notches below Unilever’s, and its highly leveraged business model has left it just one notch above ‘junk’.

 

Unilever’s shares tumbled by more than 7pc after a joint statement was released on Sunday, stating that the deal had been called off. Due to the financial muscle and organisational size of both companies, another offer would have been accompanied by a prolonged process that analysts perceive would be damaging to both companies, as well as exceeding the stipulated period permitted by UK takeover rules. Coupled with the polar differences in organisational culture, this permits the prediction that negotiations are over, and a deal is off the table.

 

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