Kraft Heinz drops $203b offer for Unilever

NEW YORK • Kraft Heinz's US$143 billion (S$203 billion) bid for Unilever collapsed just two days after it became public knowledge, with the Anglo- Dutch target's adamant rejection said to have played into billionaire Warren Buffett's long-time aversion to hostile deals.

The decision not to pursue what could have been the largest takeover in the food and beverage industry came after 3G Capital and Mr Buffett's Berkshire Hathaway, which together own about half of Kraft Heinz, decided that Unilever's negative response made a friendly transaction impossible, leaving no choice but to walk away, said people with knowledge of the situation.

Both also believed a protracted war of words was not in the best interest of Kraft and would risk souring future deal opportunities, the people said, asking not to be named because the process was private.

While there were minor concerns about opposition from the British government, said one of them, the companies were optimistic that they could win the backing of Westminster with a friendly deal. British Prime Minister Theresa May had asked officials to study the proposed takeover in the wake of the country's vote to exit the European Union.

"Kraft Heinz's interest was made public at an extremely early stage," its spokesman Michael Mullen said on Sunday in an e-mail. "Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value."

The quick withdrawal of Kraft's offer is surprising as Unilever's defences were not very formidable, such as its low stock ownership by the management, said Bloomberg Intelligence senior analyst Ken Shea.

Representatives for Berkshire Hathaway and 3G Capital did not respond to messages.

Unilever, in rejecting the US$50-a-share offer, said the proposal "fundamentally undervalues" the household products maker. Its management fretted about the cost-cutting model at Kraft, which sells products like Velveeta and Jell-O, and its lack of vision for cultivating brands, said people familiar with the situation.

Unilever shares jumped 13 per cent to close at a record €44.80 in Amsterdam last Friday. Kraft Heinz rose 11 per cent to a record in New York trading.

The quick withdrawal of Kraft's offer is surprising as Unilever's defences were not very formidable, such as its low stock ownership by the management, said Bloomberg Intelligence senior analyst Ken Shea, adding that Kraft's credibility may take a hit. "The strange episode suggests that Kraft Heinz acted a bit hastily with its takeover plan," he added.

The proposed deal would have created a company with combined sales of US$84.8 billion last year.

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A version of this article appeared in the print edition of The Straits Times on February 21, 2017, with the headline 'Kraft Heinz drops $203b offer for Unilever'. Print Edition | Subscribe