Kraft Heinz to Per­sist De­spite Unilever Re­buff

Unilever says of­fer “un­der­val­ues” it; Will con­tinue to try for a deal, says Kraft Heinz

The Economic Times - - Front Page -

Agence France-Presse

New York: Kraft Heinz sig­nalled on Fri­day it will press ahead with a cam­paign to ac­quire Dutch-Bri­tish con­sumer prod­ucts gi­ant Unilever af­ter an ini­tial bid worth about $143 bil­lion was spurned.

A deal would cre­ate a gi­ant in global food, join­ing the maker of Kraft cheese and Heinz ketchup to its Euro­pean coun­ter­part, whose prod­ucts in­clude Qtips, Hell­mann’s may­on­naise and Ben & Jerry’s ice cream.

Unilever said the of­fer of an 18% pre­mium to Thurs­day’s stock price “fun­da­men­tally un­der­val­ues” the com­pany and it “does not see the ba­sis for any fur­ther dis­cus­sions”.

But Kraft, ac­knowl­edg­ing its re­jec­tion, said, “we look for­ward to work­ing to reach agree­ment on the terms of a trans­ac­tion”, al­though there was no guar­an­tee of a deal.

Shares of both com­pa­nies surged fol­low­ing the news, sug­gest­ing the mar­ket be­lieves the mega-deal in the global food in­dus­try could hap­pen. In early trad­ing, Kraft Heinz jumped 7.5% to $93.81 while Unilever surged 9.5% to $46.62. An­a­lysts say a merger could raise red flags for an­titrust reg­u­la­tors over ef­fect on con­sumers, and for politi­cians given po­ten­tially large job cuts

But an­a­lysts said the po­ten­tially mas­sive merger could raise red flags for an­titrust reg­u­la­tors over the ef­fect on con­sumers, and for politi­cians given the po­ten­tially large job cuts.

“If the deal does see the day­light, this sim­ply means more job loss for UK and more pain for con­sumers as com­pe­ti­tion will erode,” said Naeem As­lam, an­a­lyst at Think Mar­kets, a mar­ket an­a­lyt­ics and trad­ing com­pany.

Kraft’s pur­suit of Unilever comes as global food com­pa­nies strug­gle with ane­mic eco­nomic growth in many key mar­kets.

It would also per­mit the Amer­i­can com­pany to take ad­van­tage of a buoy­ant US dol­lar at a time when the Bri­tish pound is un­der pres­sure fol­low­ing the Brexit vote.

Kraft Heinz on Thurs­day re­ported a year-over-year drop in fourth quar­ter sales, due in part to 13.3% de­cline in Europe, a re­gion chief ex­ec­u­tive Bernardo Hess called “weak” on an an­a­lyst con­fer­ence call.

Kraft Heinz is the fifth-big­gest food and bev­er­age firm in the world and the third-big­gest in North Amer­ica. It was formed by the 2015 merger struck be­tween Heinz’s con­trol­ling share­hold­ers, US bil­lion­aire War­ren Buf­fet’s Berk­shire Hath­away, and 3G Cap­i­tal of Brazil. In its earn­ings re­port, Kraft Heinz lifted its cost-sav­ings tar­get fol­low­ing that deal to $1.7 bil­lion through the end of 2017, up from $1.5 bil­lion. “The UK gov­ern­ment may try to block the deal and (US Pres­i­dent Don­ald) Trump is all about mak­ing in Amer­ica and in­ward Amer­ica. So there could po­ten­tially be some sort of bat­tle sur­fac­ing on the gov­ern­ment level as well which can make the newly es­tab­lished re­la­tion be­tween the UK and the US a bit sour,” As­lam said.

Euromon­i­tor an­a­lyst Raphael Moreau said a deal likely would face tough scru­tiny from an­titrust reg­u­la­tors, over, for ex­am­ple, the over­lap of Heinz and Hell­man’s in may­on­naise. Moreau said a smaller trans­ac­tion was plau­si­ble, whereby Unilever could “off­load some of its food brands” to Kraft Heinz.

Kraft Heinz is the fifth-big­gest food and bev­er­age firm in the world and the third-big­gest in North Amer­ica

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