US food company Kraft Heinz Co made a surprise €143 billion offer for Unilever in a bid to build a global consumer goods giant, although it was flatly rejected on Friday by the maker of Lipton tea and Dove soap.
A combination would be the third-biggest takeover in history and the largest acquisition of a UK-based company, according to Thomson Reuters data, triggering British fears over jobs.
It would bring together some of the world’s best known brands, from toothpaste to ice creams, and combine Kraft’s strength in the US with Unilever’s in Europe and Asia.
The global packaged food industry is grappling with slowing growth, new competition from upstart brands, deflation in developed markets and more health-conscious consumers.
Although Kraft, which is controlled by US billionaire Warren Buffett and private equity firm 3G Capital, said it looked forward to talking terms, Unilever said it saw no reason to discuss a deal without financial or strategic merit.
Kraft has until March 17 to make a final bid for Unilever under UK takeover rules.
Unilever shares rose to a record following news of the offer, which analysts at Jefferies called a “seismic shock”, and closed 15 percent higher, short of Kraft’s €47 per share offer price, with the news lifting shares across the sector.
Unilever said Kraft’s proposal included €28.49 per share in cash, payable in US dollars, and 0.222 of a share in a new enlarged entity per Unilever share and represented an 18 percent premium to its share price on Thursday.
“We believe Kraft will likely need to raise its offer substantially if it hopes to change the outcome,” RBC Capital Markets analyst David Palmer said in a research note.
Kraft’s move could flush out other bidders for Unilever, but of the potential rivals, US consumer giant Procter & Gamble Co may face antitrust hurdles, while pharmaceutical and consumer packaged goods company Johnson and Johnson would likely not be interested in household products.
Unilever has a larger presence than some peers in emerging markets, which were once the big driver of industry growth, but which have slowed in recent years.
It is also feeling the after-effects of Britain’s decision to leave the European Union, with a fall in the pound currency raising the cost of producing consumer goods in the UK and straining relations between the country’s retailers and suppliers.
“Unilever has struggled to achieve top line revenue growth for years and has achieved profit growth through improving the product mix and cutting costs. A tie up with Kraft Heinz would enable it to continue to improve profits in the same way,” Jonathan Bell, Chief Investment Officer at Stanhope Capital, said in an email.
Although Kraft is smaller than Unilever, with a market value of €100 billion as of Thursday, it is 50.9 percent owned by Buffett’s Berkshire Hathaway and 3G Capital, which also controls Anheuser-Busch InBev.
3G, known for driving profits through aggressive cost cutting, has orchestrated a string of big deals rocking the food and drink industry, including Anheuser-Busch InBev’s takeover of SABMiller and the combination of Kraft and Heinz.
A deal would offer opportunities to combine marketing, manufacturing and distribution in addition to cutting costs, but some industry analysts said Kraft might not want Unilever’s household and personal goods brands and could spin them off.
“This is cheap money meeting industrial logic,” said Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns Unilever shares.
“Kraft Heinz are attempting a massive push on the Fast Forward button…to acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades,” Clayton added.
Britain’s largest union, Unite, expressed immediate concern about potential job losses if Unilever fell under Kraft’s control. Unite urged Unilever to continue fending off the takeover attempt.
A recent wave of cross-border deals in Europe is leaving British businesses vulnerable to possible job cuts. PSA’s proposed acquisition of General Motor’s Opel business may eventually lead to heavy restructuring at the Vauxhall brands which employ 4,500 people in Britain, sources said.
Centerview and Morgan Stanley are working with Unilever alongside UBS and Deutsche Bank, who are also acting as corporate brokers. Kraft is working with Lazard.
Unilever’s fierce resistance has turned the “friendly” takeover into a “hostile attempt”, the Kraft-Heinz board concluded. On Sunday Kraft-Heinz therefore decided to retract their bid.