Merger shadow for Kraft’s rivals

Rivals relieved Kraft Heinz snubbed them for Unilever may want to skip the cheers.

Campbell Soup, General Mills, Kellogg and Mondelez International were top potential acquisition targets for Kraft Heinz, and even though it appears to have moved on, more consolidation could be on the menu.

Whether or not the maker of Kraft Mac & Cheese can persuade Unilever to form the world’s second-biggest food company, struggling US giants still face pressure to break their years-long sales malaise.

“They’re probably breathing a sigh of relief, but then it becomes a question of what’s next,” said Brittany Weissman, an analyst at Edward Jones.

“Sales aren’t getting better and at some point the cost cuts are going to run out.”

Unilever spurned Kraft Heinz’s US$143 billion ($199b) offer on Friday, saying the US$50-a-share proposal was too low. A merger would unite Unilever products Dove soap, Axe deodorant, Lipton tea, Hellman’s mayonnaise and Breyers ice cream with Kraft Heinz staples Velveeta, Maxwell House coffee and Oscar Mayer processed meats. Only Nestle SA would be bigger.

When it comes to corporate culture, Kraft Heinz and Unilever seem at first blush to be at loggerheads. Unilever chief executive Paul Polman has emphasised sustainability at the Anglo-Dutch company, and said profit and social responsibility are company goals. For Kraft Heinz’s manager 3G Capital it’s all about the bottom line.

In 2013, 3G joined Warren Buffett’s Berkshire Hathaway to take H.J. Heinz private. In less than two years, 3G produced industry-leading margins at the ketchup maker. They slashed thousands of jobs, shuttered factories and eliminated employee perks.

If Unilever says yes to a merger, US competitors will face a global behemoth.

“They would have tremendous scale that they could put to work in terms of lowering costs and increasing margins,” said Asit Sharma, an analyst at Motley Fool.