LONDON and CHICAGO -- Unilever has rejected a $143 billion purchase offer by Kraft Heinz, which would have been the largest takeover ever in the food or beverage industry. A successful bid would have created a consumer-goods giant with brands such as Dove and Heinz ketchup under the same umbrella.
Unilever told Bloomberg on Feb. 17 that it rejected the $50 per share proposal because it "fundamentally undervalues" the company, and it didn't find it necessary to continue further negotiations. For Kraft Heinz's part, it indicated it would continue to work to gain an agreement on the terms of a potential transaction.
The surprise bid caused Unilever shares to surge as much as 15% in London and 12% in Amsterdam. Kraft Heinz gained about 4.7% in premarket trading in New York on Feb. 17.
This megabrand consolidation would have been the third-biggest takeover in history and the largest acquisition of a U.K.-based company, according to Thomson Reuters data.
There is some speculation that Unilever was primed for a bid of this sort, with the global food industry at odds with new competition from young, innovative new brands, deflation in developed markets and customers looking for better-for-you options. Unilever's growth has slowed in recent years, and it's grappling with the effects of the United Kingdom's decision to leave the European Union.
Kraft Heinz is smaller than Unilever, according to Reuters, with a market value of $106 billion as of Feb. 16. It is 50.9% owned by Warren Buffett's Berkshire Hathaway and 3G Capital, the private-equity firm that controls Anheuser-Busch InBev. Many analysts have been expecting it to complete some sort of deal this year on the heels of reports that indicate 3G had raised a new fund.
"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," said Paul Hickman, analyst with Edison Investment Research. "Kraft Heinz will not have led with its best offer, and a protracted negotiation probably lies ahead."
Unilever said Kraft's proposal represented an 18% premium on its share price Feb. 16, the day before news of the bid broke. The proposal included $30.23 per share in cash payable in U.S. dollars.
"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."
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