Unilever has rejected a $143bn takeover approach from Kraft Heinz, the food conglomerate backed by three Brazilian billionaires and Warren Buffett, setting the stage for a battle between two of the largest consumer goods companies in the world.
The Anglo-Dutch company behind brands such as Dove soap and Ben & Jerry’s ice cream said that the $50 a share cash and stock offer, an 18 per cent premium to its closing price on Thursday, from Kraft Heinz “fundamentally undervalues Unilever”.
It added: “Unilever 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.”
With Kraft Heinz expected to continue its pursuit, funded with fresh capital from Mr Buffett and Brazil’s 3G, both sides were preparing for a showdown between companies with two radically different cultures.
Kraft Heinz was formed through debt-laden takeovers backed by Mr Buffett and the Brazilians’ New York-based private equity group, which together own 49 per cent of the company. It is known for its aggressive cost-cutting tactics.
Meanwhile, Unilever has a stable of well-known brands, but sales have recently suffered in some of its biggest emerging markets, one reason why its share price has underperformed the FTSE 100 index over the past 12 months. The company is known for its focus on trying to balance profitability with environmental sustainability.
Kraft Heinz has proposed maintaining three headquarters for the combined company, in the US, the UK and the Netherlands. But the approach comes at a sensitive moment for the UK, with its politicians and large businesses trying to navigate the uncertainty around Brexit.
The vote to leave the world’s largest trading bloc has caused a drop in the value of sterling, making UK assets significantly cheaper for non-UK cash-rich acquirers.
The Labour party MP Iain Wright, chairman of parliament’s business committee, said that the weak pound could mean “a lot of very good British companies will be subject to fire sales without taking into account their performance and quality” by foreign buyers that “won’t have the long-term interests of the UK at heart”.
If the deal were to go ahead it would make it the second largest in history, after the $183bn takeover of Germany’s Mannesmann by Vodafone of the UK in 2000, according to Dealogic.
Kraft Heinz was forced to disclose its approach after a report on FT Alphaville that said the US group had made an offer to Unilever, citing people briefed on the matter. The report caused shares in Unilever to surge, prompting the statement from the US company.
Kraft Heinz said it had made “a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living”.
It added: “While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction. There can be no certainty that any further formal proposal will be made to the board of Unilever or that an offer will be made at all or as to the terms of any transaction.”
For each existing Unilever share, Kraft Heinz offered $30.23 in cash payable in US dollars and 0.222 shares in a new holding group.
Shares in Unilever closed up 13.4 per cent to £37.97 per share in London on Friday, giving the company a market capitalisation of £113bn. It is the world’s fourth-largest consumer goods company by sales, with revenues last year of €52.7bn.
Kraft Heinz shares were up almost 8 per cent in afternoon New York trading at $93.89.
Many of Unilever’s top shareholders said that the bid drastically undervalued the company’s assets. Mike Fox at Royal London Asset Management, which holds a 0.66% stake in Unilever’s UK-listed shares, said that the price was “unacceptable”.
“There is no way either Unilever’s management or shareholders can accept an offer at this level,” Mr Fox said. “For a lower quality business it would be unacceptable, but for a business of Unilever’s quality it is nowhere near the right price.”
Unilever’s bonds also dropped sharply as jittery investors worried that Kraft Heinz’s dealmakers would leverage the Anglo-Dutch company’s strong balance sheet to pay for its bid.
Under UK takeover rules, Kraft Heinz has until the close of business on March 17 to make a binding bid for Unilever or walk away for six months.
The company is this weekend expected to launch a charm offensive to convince UK stakeholders that the deal would not be a repeat of the takeover in 2010 of Cadbury by Kraft Foods, where Kraft reneged on promises to retain factories and jobs in Britain.
Like many other consumer goods companies, both Kraft Heinz and Unilever have been suffering from a slowdown in growth as brand-fickle consumers in mature markets increasingly turn to start-ups for more exciting new products.
Earlier this week, Kraft Heinz shares suffered their biggest one-day fall since the merger in 2015 that formed the company, after it reported a fourth-quarter sales decline and said that it expected to push through deeper cost cuts.
Unilever relies on emerging markets for 58 per cent of sales, more than its peers, and it is heavily dependent on them for growth.
It has added premium brands and is exploring new ways of marketing to consumers.
Last year, it paid $1bn to buy Dollar Shave Club, as much to increase its presence in the male grooming market as to develop the ecommerce subscription model on which the California-based acquisition is based.
Kraft Heinz came together in a $100bn deal orchestrated by Mr Buffett and Brazil’s 3G Capital in 2015 and has been focused on driving down costs aggressively in the companies it has bought, aiming to save $1.7bn annually by 2018.
Analysts have been predicting further consolidation in the industry and speculating that 3G could strike again, two years after its previous big deal, with some seeing Mondelez International as a possible target.
Mondelez shares fell 1 per cent on Friday as investors discounted the chances of Kraft Heinz turning back its sights on the US-listed group.
In January, Paul Polman, Unilever’s chief executive, rattled investors after warning of “challenging” conditions in the first half of this year after a sluggish 2016.
Additional reporting by Kate Allen and Miles Johnson in London and Mamta Badkar and Adam Samson in New York
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