Unilever has rejected an approach from Kraft Heinz with regards to a potential merger.
But Kraft-Heinz intends to pursue the deal, and both companies said they ‘look forward’ to working towards an agreement.
US-based Kraft Heinz said it made ‘a comprehensive proposal’ to the Anglo-Dutch consumer goods company, but that the proposal was declined.
Kraft Heinz said that the proposed combination would create ‘a leading consumer goods company with a mission of long-term growth and sustainable living’.
Any deal would create a giant in the food industry with a breadth of brands across the food, beverage and dairy categories. Unilever owns Lipton iced tea, a number of spreads like Marmite and Hellmann’s, plus ice cream brands including Magnum, Ben & Jerry’s and Wall’s.
Analysis: a perfect fit?
Around 80% of Kraft Heinz’s turnover comes from the US and Canada, while Unilever performs best in Europe and Asia. Alex Clere asks whether their complementary geographies could make a deal between the two a perfect fit [read more…]
Kraft Heinz is made up of its two original constituent parts – Kraft and Heinz – which between them manufacture a host of well-known products including Heinz tomato ketchup and baked beans, Philadelphia cream cheese, Kraft cheese slices and Capri-Sun juices.
It has been less than two years since Kraft Foods and HJ Heinz merged to form a joint entity.
According to the two companies’ full-year results, published in the past few weeks, Kraft Heinz is less than half the size of Unilever.
The Kraft Heinz Company reported net sales of $26.5 billion in its full-year results earlier this week – up 44% from $18.3 billion in 2015.
Added to Unilever’s turnover of €52.7 billion in 2016, a combined business would generate annual revenue of more than €77.5 billion. That would make it the world’s second biggest food company, only €6 billion behind Nestlé.
Shares in Unilever have jumped by more than 10% since news of the offer was made public, and pre-market trading was up by around 4% in New York.
According to reports, the value of the rejected deal was in excess of £100 billion.
Paul Hickman, 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. With about 70% of revenue from Europe and Asia, Unilever’s markets are complimentary to Kraft Heinz, which has around 70% in the US. Inevitably, Kraft Heinz will not have led with its best offer and a protracted negotiation probably lies ahead.”
It is thought that 3G, the private equity partner of Warren Buffett, could be behind part of the financing for the deal.
Raphael Moreau, food analyst for Euromonitor, said: “Although there was little incentive for Unilever to accept this initial merger offer, Kraft Heinz and its investment vehicle 3G Capital’s willingness to pursue a deal could ultimately encourage Unilever to seek to offload some of its food brands, to which Kraft Heinz would seek to apply aggressive cost reductions. While creating synergies in sauces and soups could be a rational for such a deal, a combination of Heinz and Hellmann’s in mayonnaise could struggle to be given approval by competition authorities. Its search for a mega-merger could see 3G Capital and Kraft Heinz settle for a smaller deal under which group synergies would be more achievable.”
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