Kraft announced it was pulling out rather than – as analysts had originally expected – making an improved offer, just days after details of its bid emerged. It feared that a hostile takeover would undermine the chances of success.
Unilever, whose brands include Marmite, Hellmann’s and Ben & Jerry’s ice cream, claimed the Kraft Heinz proposal – which represented a 18% premium on Unilever’s share price at the close of play on February 16, the day before the bid was made – “fundamentally undervalues Unilever”.
Unilever said it rejected the bid as it saw “no merit, either financial or strategic”, for its shareholders.
Reports suggested that, had the bid gone through, it would have been the second largest takeover in corporate history after Vodafone’s £163bn ($203bn) takeover of Mannesmann in 2000.
‘Constraints on organic growth opportunities’
Commenting before the news of Kraft’s withdrawal was announced, Paul Hickman, an analyst at Edison Investment Research, said: “Kraft Heinz’s approach demonstrates the pressure on brand owners to consolidate in the face of international pressure on margins and constraints to organic growth opportunities.”
At the same time, Edison director of research Neil Shah added: “Before biting off Heinz, Kraft’s last big chomp for a historic name in food was for Cadbury in 2010. An approach for Unilever is a sure sign of the surge in dollar buying power and the decline in sterling.”
Jonathan Buxton, partner and head of consumer and retail at Cavendish Corporate Finance, added: “Motivation for the deal is less benign, with both businesses suffering growth and sales pressures as brand loyalty is more difficult to engender in increasingly capricious consumers.
“Growth forecasts for the global packaged goods sector are also restrained prompting greater focus on potential mergers and acquisitions.”
Unilever had a spat with customer Tesco last October over its attempts to raise prices for Marmite to compensate for the fall in value of the pound against the US dollar and euro.
Before Kraft Heinz withdrew its bid, trade unions had come out strongly against what they viewed as the “predatory” takeover for Unilever from the US company. They feared it put Unilever’s 7,500 UK jobs in potential jeopardy.
Union Usdaw’s national officer Daniel Adams said: “Usdaw members employed at sites in Port Sunlight and Leeds are naturally concerned that any takeover could lead to cost cutting and staff reductions.”
Rhys McCarthy, national officer for Unite, which represents around 2,000 Unilever staff in the UK, said: “Kraft Heinz and their backers’ reputation for cost cutting, we believe, will lead to great brands being harmed through job cuts and a never-ending drive to push costs down.”
Unions, no doubt had in mind the about-turn made by Kraft on its promises to keep open Cadbury’s factory in Somerdale, near Bristol prior to its £11.5bn acquisition of the chocolate maker in 2010.