Kraft bid shakes up food sector
• Unilever rejects $143bn offer, saying $50-a-share proposal is too low, but more consolidation may be on menu
Competitors relieved that Kraft Heinz snubbed them for Unilever may want to skip the celebration as more consolidation could be on the menu. Unilever on Friday spurned Kraft Heinz’s $143bn offer, saying the $50-a-share proposal was too low.
Competitors relieved that Kraft Heinz snubbed them for Unilever may want to skip the celebration.
Campbell Soup, General Mills, Kellogg and Mondelez International were top potential acquisition targets for Kraft Heinz, and even though the company appears to have moved on, more consolidation could be on the menu.
Whether 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 yearslong 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 $143bn offer on Friday, saying the $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 would be bigger.
CORPORATE CULTURE
When it comes to corporate culture, Kraft Heinz and Unilever seem at first blush to be at loggerheads. Unilever CEO Paul Polman has emphasised sustainability at the AngloDutch company, and argued that profit and social responsibility are company goals. For Kraft Heinz’s managers, 3G Capital, it is all about a relentless focus on the bottom line.
In 2013, 3G joined Warren Buffett’s Berkshire Hathaway to take HJ Heinz private.
In less than two years, 3G’s managers produced industryleading margins at the tomato sauce maker.
They slashed thousands of jobs, shut down factories and eliminated employee perks. In 2015, Buffett and 3G orchestrated the $55bn merger of Heinz and Kraft Foods, promising to cut annual expenses by $1.5bn by 2018.
Kraft’s earnings before interest, taxes, depreciation and amortisation had consistently hovered at about 20% of revenue pre-acquisition. The combined company’s margin now is 30%.
Kraft is ahead of schedule on cost cuts and recently boosted its target to $1.7bn, increasing speculation that a major food deal will come in 2017.
DEAL PARTNER
But Unilever was not the rumoured deal partner. Conjecture focused on large US companies that have struggled to increase sales amid changing consumer tastes.
If Unilever says yes, US competitors will be forced to reckon with a global behemoth. That could prompt General Mills, Kellogg, Campbell and Mondelez to seek deals of their own, according to Asit Sharma, an analyst at Motley Fool. “They would have tremendous scale that they could put to work in terms of lowering costs and increasing margins. If you’re a smaller player, it will be very difficult to compete.”
Mondelez has already anticipated a possible Kraft Heinz takeover bid. In June, the maker of Oreo cookies made a $23bn offer for Hershey to strengthen its defences. Hershey rejected the offer and rebuffed a higher bid before Mondelez ended the talks.