Household goods and food group Unilever is preparing to mount a fierce defence against a takeover bid by Kraft Heinz after rebuffing the US company’s initial £115bn offer, one of the largest in corporate history. Kraft Heinz, whose brands include Philadelphia and WeightWatchers, vowed to keep up its pursuit despite Unilever insisting that there was “no merit, strategic or financial” to a deal.
The US firm’s attentions drew fire from trade union Unite, which branded Kraft “predatory” and predicted that any deal would trigger job losses among the two companies’ combined UK workforces of nearly 9,000. It said Kraft Heinz, backed by Brazilian private equity group 3G Capital and Berkshire Hathaway – the investment vehicle of billionaire investment guru Warren Buffett – was out to make a “quick buck”.
But a source familiar with the discussions played down the prospect of a deal being struck, even if Kraft Heinz increases its cash-plus-shares offer. The source said there was an “element of opportunism” to Kraft’s bid because stock market gains made by US firms since the election of Donald Trump had inflated the value of their shares.
“They’ve been sitting with the calculator out waiting for the green light to go on, and now they’ve pounced,” the source added. “Hopefully the lack of logic to the transaction is enough to make them down tools.”
Unilever is expected to warn investors that Kraft would load up the company with debt to fuel growth while slashing costs, hindering investment in premium brands such as Dove soaps and Magnum ice cream.
Kraft’s second-largest shareholder, 3G, is famed for boosting returns through aggressive cost-cutting including heavy job losses, a strategy it has deployed at beer firm ABInBev and has also pursued since the merger with Heinz. Beto Sicupira, who co-founded the business with Brazilian billionaire Jorge Paulo Lemann, once said: “Costs are like [finger]nails: they always need to be cut.”
Despite Unilever’s reluctance to talk to Kraft, shares in the London and Rotterdam-based company shot up 13.4% to close at an all-time high of £37.97 on Friday.
Kraft is expected to sweeten its opening bid of £115bn, a price tag that would already be the second largest in corporate history behind Vodafone’s $203bn (£163bn) takeover of Germany’s Mannesmann in 2000. If an agreement can be reached, it would create a firm described by Mike van Dulken at Accendo Markets as “one of the biggest groups in the world, selling over 400 consumer/household goods to over a third of mankind”.
The combined company would have a stock market value of more than £200bn, revenues of £68bn, and would also control 3% of the world market for packaged food, according to market research group Euromonitor. The combined workforce would be 210,000 people, nearly 9,000 of whom work in UK facilities such as the Kitt Green factory near Wigan, which produces more than 1bn cans of baked beans a year.
Paul Polman, the chief executive of Unilever, would be one of the biggest beneficiaries of a takeover, which would trigger a payout of bonus shares worth nearly £12m.
Analysts said that while any deal would create massive cost savings, it would also give the combined firm the muscle to drive up prices on popular brands such as Hellmann’s mayonnaise and Ben & Jerry’s ice cream.
“Market power would be much increased as the major supermarkets would have little choice but to buy from the merged business,” said Professor John Colley of Warwick business school. “Strengthened pricing power for so many major brands would not benefit the consumer.”
Britain’s largest trade union, Unite, warned that cost cuts following a takeover would put UK jobs under threat and said it was seeking a meeting with Unilever’s management. “Kraft Heinz and their backers’ reputation for cost-cutting, we believe, will lead to great brands being harmed through job cuts and a never-ending drive to push costs down,” said national officer Rhys McCarthy.
“This takeover bid is, we fear, driven by a desire for a growth in sales, not through product innovation and maintaining great brands, but by gobbling up a major competitor and slashing costs to generate a quick buck.” He added that a takeover would lead to “job losses and poorer products for consumers”.
The proposed takeover is the latest in a string of deals since the UK voted for Brexit. Since the referendum on 23 June, the value of the pound has slumped, making UK-based businesses relatively cheaper for foreign buyers. Chip designer Arm Holdings was snapped up for £24bn by Japan’s Softbank, while Rupert Murdoch’s Fox has taken the opportunity to bid for the 39% stake in satellite broadcaster Sky that it does not already own.
Before its merger with Heinz in 2015, Kraft came under fire in the UK for its conduct during the prolonged battle to take over Cadbury, which was later included in the Mondelez snacks business that the US firm spun off in 2012.
Steve Clayton, fund manager at Hargreaves Lansdown, said Kraft would have to table a much higher bid to succeed. “A short-term premium today is no compensation for losing the growth that Unilever could produce for decades to come,” he said. “So to win over a majority of Unilever’s shareholders, we think Kraft Heinz will need to dig very deep indeed.”
How the two firms line up
Unilever
Owner Anglo-Dutch multinational
Headquarters Rotterdam and London
Workforce 168,000 employees
Chief executive Paul Polman
Brands Bertolli, Comfort, Domestos, Dove, Flora, Hellmans, PG Tips, Pot Noodle, Knorr, Marmite, Tresemmé , Vaseline, Lipton, Lynx, Persil, Sure, Ben & Jerry’s, Carte D’Or, Cif
Kraft Heinz
Ownes 51% owned by billionaires Warren Buffett (US) and Jorge Lemann (Brazil)
Headquarters Chicago, US
Workforce 42,000 employees
Chief executive Bernardo Hees
Brands Kraft, Heinz, Capri-Sun, Cracker Barrel, Philadelphia, Jell-O, Lea & Perrins, Maxwell House, Weight Watchers, Planters, Daddies, HP
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