Kraft Heinz makes $143B offer to buy Unilever
LONDON — Almost two years after it was created in a megamerger, the Kraft Heinz Co. is going shopping again. And it is aiming high.
On Friday, the company said that it had offered to buy Unilever in a $143-billion (all figures U.S.) deal that would potentially combine some of the world’s best known consumer brands. If it were to happen, Unilever consumer staples like Dove soap, Hellmann’s mayonnaise and Lipton tea would join forces with Kraft Heinz’s Oscar Mayer meats, Heinz Ketchup and Kraft Macaroni & Cheese.
Kraft said that its offer had been declined, but that it looked forward to “working to reach agreement on the terms of a transaction.” Unilever, however, said that the proposal “fundamentally undervalues” the company, and that it saw “no merit, either financial or strategic” for the deal. It said it saw no basis for further discussions.
“The main benefits from such a deal would be major cost reduction as head offices and regional management could be merged,” John Colley, a professor of practice in strategy and leadership at Warwick Business School. “There would also be some purchasing benefits from increased buying power.”
“Market power would be much increased as the major supermarkets would have little choice but to buy from the merged business,” he said.
The offer came as consumergoods companies are being squeezed by fluctuating currency rates, such as the strong U.S. dollar in Kraft Heinz’s case, and higher prices for staples used in their products.
It would also mark further consolidation in the sector as makers of consumer goods push for more space in the public’s shopping carts.
Kraft Heinz’s offer follows speculation late last year that it may make an offer for Mondelez International, the maker of Oreos and Ritz crackers.
Unilever is the fourth largest seller of packaged food worldwide — behind Nestlé, PepsiCo and Mondelez — and Kraft Heinz is the fifth, according to data from Euromonitor International. In addition to packaged foods, Unilever also is the second-largest consumergoods maker behind Procter & Gamble based on sales.
Kraft offered to pay $50 a share in cash and shares, representing an 18 per cent premium to Unilever’s closing price on Thursday, Unilever said.
Under British takeover rules, Kraft would have until March 17 to announce its firm intention to make an offer for Unilever or walk away.
The offer came two years after 3G Capital and Warren Buffett combined Kraft with Heinz in a deal worth more than $80 billion. Buffett and 3G acquired Heinz in 2013 and together own about 51 per cent of Kraft Heinz.
On Thursday, Kraft Heinz, based in Chicago and Pittsburgh, reported net sales of $26.5 billion, while saying it would continue its cost-cutting efforts, targeting pre-tax cost savings of $1.7 billion by the end of this year.
It employs people in more than 40 countries worldwide.
Unilever, which is based in London but traces its roots to the Netherlands in the late 1800s, has about 400 brands in the food, personal care and home-care markets that it claims are used by two billion people daily.
In January, the company reported 52.7 billion euros, or about $56 billion, in sales in 2016.