Unilever rejects $143-B buyout bid by Kraft Heinz

LONDON (Reuters) – US food company Kraft Heinz Co. made a surprise $143 billion offer for Unilever Plc in a bid to build a global consumer goods giant, although it was flatly rejected on Friday by the maker of Lipton tea and Dove soap.

A combination would be the third-biggest takeover in history and the largest acquisition of a UK-based company, according to Thomson Reuters data.

It would bring together some of the world’s best known brands, from toothpaste to ice creams, and combine Kraft’s strength in the United States with Unilever’s in Europe and Asia.

The global packaged food industry is grappling with slowing growth, new competition from upstart brands, deflation in developed markets and more health- conscious consumers.

Although Kraft, which is controlled by US billionaire Warren Buffett and private equity firm 3G Capital, said it looked forward to talking terms, Unilever said it saw no reason to discuss a deal without financial or strategic merit.

Kraft approached Unilever earlier this week, according to people familiar with the matter, who declined to be identified because the approach was confidential.

Kraft believes that investing in innovation would be an important part of the combined company, one of the people said. Kraft has also offered to keep three headquarters for the combined company in the United States, Britain and the Netherlands, the source added.

Credit rating agency Moody’s characterized the bid for Unilever as “credit negative” as the combined company would be more highly financially leveraged. There would be offsetting benefits such as cost savings, an expanded geographic footprint and improved product diversification, the agency said.

Kraft wants the combined company’s credit rating to be investment-grade, according to the sources.

Kraft has until March 17 to make a final bid for Unilever under UK takeover rules.

Unilever shares rose to a record following news of the offer, which analysts at Jefferies called a “seismic shock,” and closed 15 percent higher, short of Kraft’s $ 50 per share offer price, with the news lifting shares across the sector.

Unilever said Kraft’s proposal included $ 30.23 per share in cash, payable in US dollars, and 0.222 of a share in a new enlarged entity per Unilever share and represented an 18 percent premium to its share price on Thursday.

“We believe Kraft will likely need to raise its offer substantially if it hopes to change the outcome,” RBC Capital Markets analyst David Palmer said in a research note.