Kraft’s botched bid for Unilever: it does not hurt to ask
Were investors Lemann and Buffett only testing the water? On 17 February 2017, their giant company Kraft Heinz made a surprise USD 143 billion bid for rival Unilever, only to revoke it a few days later.
Mr Buffett’s Berkshire Hathaway owns about 27 percent of Kraft Heinz, and Mr Lemann’s private equity firm 3G holds about 24 percent. Mr Lemann is a major shareholder of AB-InBev.
While there has been a persistent rumour that Mr Lemann would strike another headline-making bid this year, few industry watchers had Unilever on the radar.
Not only is Unilever (USD 131 billion) bigger than Kraft (USD 113 billion) in terms of market capitalisation, it is also a strange breed of a corporation, consisting of a British and a Dutch company with separate listings, which were amalgamated (not combined) in 1929 for tax purposes.
Still, if successful, Kraft Heinz’s approach would have created the second-largest packaged foods business globally after Nestle.
Although Unilever immediately responded by saying “no” and “never”, it only won a six-month reprieve. That’s how long Kraft is prevented from making another bid under the UK’s takeover rules.
Take it for granted that some of Unilever’s top shareholders – BlackRock, Norges Bank, L&G and Vanguard – aren’t cuddly types. They may have supported Unilever in rejecting Kraft’s first offer, but they will clearly be expecting the companies to keep talking.
And, they will have put extra pressure on Unilever’s management to accelerate growth and boost margins, thus demonstrating that Unilever is really better off on its own. Unilever’s CEO Paul Polman has six months to do so … and counting. Once that window of protection provided by UK takeover rules expires, Unilever could face a new proposal from Kraft.
Mr Polman has already announced cost-cutting plans. However, should they fall short of what Kraft could achieve at Unilever, shareholders may be swayed more easily towards accepting another offer from Kraft.
To our readers, the Unilever bid bears uncanny resemblances to InBev’s takeover of US brewer Anheuser-Busch (A-B) nine years ago – a deal that was also orchestrated by Mr Lemann and Mr Buffett. In response to InBev’s unsolicited offer, A-B’s CEO August Busch IV announced cost cutting schemes of USD 1 billion over two years. But he was bested by InBev’s CEO Carlos Brito who sought to save at least USD 1.5 billion annually. We remember how this story ended: A-B was sold to InBev.
The only hurdles standing in the way of a successful takeover of Unilever are Kraft’s reputation in the UK and Prime Minister Theresa May. That’s why Kraft desperately needs the deal to be passed off as “friendly”.
Even before Kraft was taken over by Messrs Lemann and Buffett in 2015 in a USD 55 billion combination with H.J. Heinz, Kraft was branded an aggressive American predator, which broke its promise to keep open the Somerdale Cadbury factory near Bristol. It was Kraft’s takeover of Cadbury in 2010 that triggered an outpouring of grief about foreign companies buying beloved British businesses.
The big question is: Will Mrs May, who has set out her stall as the leader who stands up for old fashioned British values, let the deal go through? After the Cadbury debacle, the howls of protest in the popular press would be huge.
Nonetheless, commentators say that she will be faced with a two-way pull. On the one hand, she will need to make it clear that Britain is open for business in the post-Brexit world, while on the other she will want to champion British patriotic feeling.
Kraft and Unilever: watch this space.
