Unilever rejects $143bn Kraft-Heinz mega-merger bid

Darren Sullivan
February 19, 2017

On Friday, the company said that it had offered to buy Unilever in a $143-billion deal that would potentially combine some of the world's best known consumer brands.

The Anglo-Dutch maker of Dove and Ben & Jerry's ice-cream said that the $50-a-share offer from the USA group fundamentally undervalued the company and had no financial or strategic merit.

The maker of Velveeta cheese, Heinz ketchup, Kool-Aid, Cool Whip and Oscar Mayer meats, said it "look [s] forward to working to reach [an] agreement on the terms of a transaction", though it added there's no certainty another formal proposal will be made.

Kraft Heinz remains keen to bring household products such as Ben & Jerry's ice cream, Hellmann's mayonnaise, HP sauce and Capri Sun under one umbrella, despite Unilever strongly rejected its initial takeover bid.

"If I was Unilever, I would fight this with hand and fist", said Erich Joachimsthaler, a branding expert who runs the Vivaldi consulting firm.

Kraft has said it is still pursuing a deal.

Against that backdrop, Unilever is trying to convince investors that a deal wouldn't make sense.

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Unilever said Kraft's proposal represented an 18pc premium to its share price on Thursday, the day before news of the bid was announced in a stock market statement.

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

Unilever rejected the US$50 per share offer, saying that it was too low.

In this vein, we're holding the line our $69 fair value estimate for Kraft Heinz and our Euro 40/GBX 3,600 for Unilever.

Kraft's overture follows a 17 percent slump in the pound against the dollar since Britain voted to leave the European Union, along with Unilever's worst annual stock performance since the financial crisis in 2008.

Unilever's swift rejection of the deal comes after the parties held two meetings late last week to discuss the potential of creating a company with combined sales of close to $80 billion, including 21 global brands with annual sales of $1 billion or more.

"We can understand how some investors could wonder if Kraft's efficiency-centric model is as sustainable as many have believed", Barclays analysts said earlier this month. Its backers include Brazil's 3G and Warren Buffett.