MergerMarket
Unilever suitor Kraft Heinz can find synergies to justify offer bump - sector advisors
Kraft Heinz [NASDAQ:KHC] can find enough cost synergies to table a higher offer than its GBP 112bn opening bid for Anglo-Dutch consumer goods group Unilever [LON:ULVR; AMS:UNA], independent sector advisors told this news service.
Unilever publicly rebuffed Kraft Heinz's offer earlier today, stating that it "fundamentally undervalues" the business and has no financial or strategic merit. The offer represented an 18% premium to Unilever's share price as of the close of trading on 16 February.
Chicago-based Kraft Heinz, which is part owned by Brazilian investment firm 3G Capital and Warren Buffett’s Berkshire Hathaway [NYSE:BRK.A], has a track record of ruthless cost-cutting, one of the advisors said. With big consumer deals, cost savings are generally targeted at 5%-10% of sales, and Kraft Heinz could have the playbook to cut 10% at Unilever, he said.
As a consumer-food giant, Kraft Heinz is likely to find greater cost synergies with Unilever’s food division, taking an axe to sales and accounting while also taking advantage of all available distribution synergies, the first advisor said. There are fewer such opportunities with Unilever’s personal care brands, although accounting personnel could conceivably be cut, he said.
Greater synergies are available between the companies’ food portfolios, a second advisor agreed, although he cautioned that Kraft Heinz’s model can make it difficult to sustain long-term growth and Unilever is a complex business that could be difficult to consolidate.
Unilever’s personal care portfolio could be used to Kraft Heinz’s advantage, a third advisor said. Unilever has a global footprint that offers distribution synergies in developing markets, she said.
This deal would instantly make Kraft Heinz a giant in personal care, a new category for the company, in which Unilever enjoys a near-duopoly globally with Procter & Gamble [NYSE:PG], she said. This diversification would give Kraft Heinz a dominant position in supermarkets around the world, thereby improving its negotiating power across categories, she said.
Unilever announced it is working with law firm Linklaters, PR firm Tulchan Communications and investment banks Centerview Partners, Deutsche Bank, Morgan Stanley and UBS regarding the Kraft Heinz offer. Lazard is advising Kraft Heinz.
Unilever and Kraft Heinz declined to comment for this story.