Unilever/Kraft Heinz takeover obstacles too numerous to surmount - MergerMArket
Kraft Heinz’s [NASDAQ:KHC] fruitless offer to Unilever [LON:ULVR, AMS:UNA] last Friday (17 February) faced a litany of obstacles from the start, sector bankers told this news service.
The USD 49.61-per-share (GBP 40.09) offer was fair following Kraft Heinz's initial approach in recent weeks, a source familiar with the situation said. Despite discussions between the parties, the price announced on Friday was ultimately determined by Kraft Heinz alone, a second source familiar said. Kraft Heinz’s price was likely flexible, one of the sector bankers said.
Kraft Heinz walked away from the proposed acquisition on Sunday (19 February). Unilever did not feel USD 49.61 per share was high enough for a meaningful adjustment of the cash (USD 30.23 per share) or equity (USD 19.38 per share), it is understood.
The equity component was valued higher after the offer was announced as Kraft Heinz's stock price moved up, boosting the total premium from 18% to 25%, the first source noted.
Unilever’s other concerns included the two companies’ contrasting corporate cultures and Kraft Heinz’s cost-averse business approach, which would have run against Unilever’s focus on investment for the top line, it is understood.
Kraft Heinz could have had deep cuts in store for Unilever, this news service reported. Not every division of Unilever presented the same opportunities for cost savings, as its foods would have meshed better with Kraft Heinz’s portfolio than its non-food brands, a second sector banker said. Unilever’s food division constituted 23.8% of 2016 revenues.
This margin-enhancing strategy — as practiced by Kraft Heinz minority owner 3G Capital — can be a dangerous long-run proposition, the second banker said. A target company has its costs run down for three or four years, sees little investment in research and brand development, and winds up a husk, he said. Its owners are likely to have realised impressive margins along the way, but risk low growth in the long run, he said.
The deal also faced a potential obstacle in Unilever’s shareholder structure that gave its two constituent Netherlands and UK listings separate investor bases, potentially increasing the number of shareholders and regulatory regimes that could weigh in on the deal.
By UK takeover law, Kraft Heinz cannot approach Unilever for another six months unless another company makes an offer to Unilever in the meantime.
Kraft Heinz did not respond to request for comment and Unilever declined to comment.