Competitors still face consolidation

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 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 $143 billion (R1.86 trillion) offer 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 Nestlé 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 argued that profit and social responsibility are company goals.

For Kraft Heinz’s managers, 3G Capital, it’s 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 industry-leading margins at the ketchup maker. They slashed thousands of jobs, shuttered factories and eliminated employee perks.

Cut expenses

In 2015, Buffett and 3G orchestrated the $55bn merger of Heinz and Kraft Foods, promising to cut annual expenses $1.5bn by 2018. Kraft’s earnings before interest, taxes, depreciation and appreciation had consistently hovered around 20 percent of revenue pre-acquisition. The combined company’s margin now is 30 percent. Kraft Heinz is ahead on cost cuts, increasing speculation that a major food deal will come this year.

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. – Bloomberg