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Kraft Heinz Withdraws $143 Billion Offer to Merge With Unilever Kraft Heinz Withdraws $143 Billion Offer to Merge With Unilever
(about 7 hours later)
LONDON — Kraft Heinz has withdrawn its $143 billion proposal to create a consumer goods giant by combining with Unilever, the companies said Sunday. On Friday, Kraft Heinz seemed determined to press ahead with a $143 billion takeover bid for Unilever, an ambitious campaign that would have put dozens of the best-known names in consumer households around the world under one roof.
The companies said Kraft Heinz had agreed to do so after amicable talks. But less than 48 hours later, Kraft Heinz’s board — including Warren E. Buffett and the Brazilian-born billionaire Jorge Paulo Lemann — decided to walk away.
Their statement was brief. “Unilever and Kraft Heinz hold each other in high regard,” the companies said. “Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.” The alternative would have been to pursue a public and possibly costly fight against Unilever, a bulwark of British and Dutch business.
But Michael Mullen, a Kraft Heinz spokesman, offered more detail on why the company had stepped away so soon from its bid. “Kraft Heinz’s interest was made public at an extremely early stage,” he said. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.” Instead, the two consumer goods giants said on Sunday that Kraft Heinz had withdrawn its takeover bid after an agreement on friendly terms. As a joint statement from the companies put it, “Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”
“It is best to step away early so both companies can focus on their own independent plans to generate value,” he added. The announcement swiftly ended what had been poised to become the biggest instance of consolidation within the food and consumer goods industry, at a time when giants in the fields have been looking to combine to command more space on grocery shelves. A combination of Kraft Heinz, itself the product of a mega-merger, and Unilever would have sold everything from Heinz ketchup and Oscar Mayer hot dogs to Hellmann’s mayonnaise, Dove soap and Lipton tea.
The withdrawal came two days after Kraft Heinz announced that it had made a surprise offer to acquire Unilever, the maker of Dove soap and Axe body spray, Ben & Jerry’s ice cream and Hellmann’s mayonnaise. Kraft Heinz surprised the world when it disclosed on Friday, at the behest of the British merger regulator, that it had made a bid for Unilever. The disclosure came after a report in The Financial Times’s Alphaville blog said the two companies had held talks. Unilever quickly responded by saying that the $143 billion offer, a roughly 18 percent premium on the company’s closing stock price on Thursday, was too low and that it saw no reason to engage in talks.
The offer was quickly rejected by Unilever, but Kraft Heinz signaled on Friday that it was prepared to continue its push for a combination. Kraft Heinz had approached Unilever only a few weeks before and had hoped to court its target in private, according to people with knowledge of the talks.
Unilever said on Friday that the offer — an 18 percent premium to its closing price on Thursday — “fundamentally undervalues” the British-Dutch company. It also said it saw no basis for further discussions. Much of the food world had prepared for a potentially aggressive campaign by Kraft Heinz, whose backers at the Brazilian investment firm 3G Capital have long been known as swashbuckling deal makers eager to build up titans in the food and beverage industries. Along with Mr. Buffett, 3G had engineered a takeover of Heinz in 2013 and then Heinz’s merger with Kraft two years later, each in a multibillion-dollar deal.
Under British takeover law, Kraft Heinz had until March 17 to announce a formal intention to acquire the company. By late last year, analysts and investors were speculating that Kraft Heinz was on the hunt for yet another major acquisition, although talk at the time centered on companies like Mondelez International, the former candy business of Kraft. Unilever, with its mix of food and household goods, had not been on many analysts’ radar screens, although they said its international profile and its strength in emerging markets would have complemented Kraft Heinz’s heavy focus on the United States.
The transaction, if it had been completed, would have been the largest cross-border merger since the British wireless provider Vodafone’s $183 billion acquisition of Mannesmann of Germany in 2000. Shares of Kraft Heinz jumped more than 10 percent on Friday while those of Unilever rose 15 percent, suggesting that investors in both were eager for a union.
A combination of Kraft Heinz and Unilever would have created an empire of hundreds of household names, with more than $82 billion in sales. While many on Wall Street had assumed that Kraft Heinz and 3G were prepared to fight for Unilever, Kraft Heinz and its backers had little desire to wage such a battle. That stands in contrast with how InBev, the 3G-backed beer company, pursued Anheuser Busch in 2008: InBev was prepared to oust Anheuser’s board before agreeing to raise its offer and reach a friendly deal.
The withdrawal came after news media reports over the weekend that Kraft Heinz was preparing to meet with some of Unilever’s biggest investors in hopes of winning their support. Discussions among senior executives at Kraft Heinz and Unilever, as well as their advisers, underscored that Unilever was unwilling to proceed at any price. Moreover, the British government had expressed concern about the potential acquisition, citing the treatment of another British icon, Cadbury, after its takeover by Kraft in 2010, including accusations that Kraft reneged on promises to maintain hundreds of British jobs after the deal closed.
Kraft Heinz was created two years ago in a deal driven by 3G Capital, the Brazilian investment firm that bought Heinz in 2013 along with Warren E. Buffett. The chairman of Parliament’s business committee, Iain Wright, said on Friday that “a lot of very good British companies will be subject to fire sales without taking into account their performance and quality.”
One concern was 3G’s traditional playbook of extreme cost-cutting, down to replacing workers’ personal printers with communal ones and selling off extravagances like corporate jets. Unilever has been known for years for its commitment to environmental sustainability, although its chief executive, Paul Polman, has recently pushed for more cost-cutting initiatives as well.
While Kraft Heinz had been prepared to make a number of concessions — including raising its offer and keeping Unilever’s headquarters in London and Rotterdam — the appetite among Mr. Buffett, Mr. Lemann and other directors for waging a fight waned, leading to the decision on Sunday morning to withdraw. That move came well ahead of a deadline set by the British takeover panel; Kraft Heinz had to make a firm offer by March 17.
“Kraft Heinz’s interest was made public at an extremely early stage,” Michael Mullen, a spokesman for Kraft Heinz, said in a statement. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.”
Kraft Heinz has been advised by Lazard and the law firm Paul, Weiss, Rifkind, Wharton & Garrison; Unilever received advice from the banks Centerview Partners, Morgan Stanley, UBS and Deutsche Bank.