3G Capital has up to $15bn to deploy in next megadeal
Private equity group keen to do a takeover after Kraft Heinz’s failed bid for Unilever
3G Capital, the private equity group that spearheaded Kraft Heinz’s failed $143bn bid for Unilever, has up to $15bn to deploy on its next megadeal, according to several people close to the group.
3G, which frequently invests alongside Warren Buffett, is determined to identify and execute a major takeover soon following the collapse of the Unilever deal on Sunday, said two people briefed on the company’s situation.
New York-based 3G has raised $10bn in its latest fund and has the option to ask investors to contribute a further $5bn, added these people.
3G did not immediately respond to a request for comment.
Alongside cash from veteran investor Mr Buffett and its funds, 3G typically secures large amounts of debt to finance its deals by raising borrowings against a target company’s balance sheet.
This structure enabled 3G to contemplate Kraft Heinz’s $143bn bid for Unilever.
Kraft Heinz is jointly controlled by 3G and Mr Buffett’s Berkshire Hathaway, and the abrupt withdrawal of the US food group’s offer for Unilever was the first time the private equity company has been defeated in a takeover battle.
Kraft Heinz, noting strong opposition from the Anglo-Dutch consumer goods company to its bid, said on Sunday its “interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.”
The failed tilt at Unilever revealed that 3G is ready to expand its reach beyond food, beverages and fast-food restaurants, the three consumer sector categories in which it has grown through its investments in Kraft Heinz, Anheuser-Busch InBev and Burger King, respectively.
3G-backed companies rely on acquisitions to allow them to increase their profitability since the group can impose strict cost discipline and streamline operations.
Jorge Paulo Lemann, the Brazilian billionaire and co-founder of 3G, regarded the acquisition of Unilever as an opportunity to use Kraft Heinz to generate significant cost savings with Unilever’s food business, while giving the private equity group a new foothold in household and personal care businesses, said people involved in the takeover battle.
The cash element of Kraft Heinz’s $50 a share offer for Unilever involved funds from 3G and Berkshire Hathaway, plus debt raised from capital markets.
The other 40 per cent of the consideration consisted of shares in the enlarged company.
Kraft Heinz’s bid for Unilever is likely to revive speculation the group could be interested in acquiring Mondelez International, the snack company that was split out of Kraft Foods in 2012. It has a market capitalisation of about $65bn.
Bill Ackman, the activist hedge fund investor who owns 5.6 per cent of Mondelez, has repeatedly floated the idea that the maker of Cadbury’s chocolate and Trident gum should sell itself to Kraft Heinz.
Kellogg, General Mills and Campbell Soup — which have market values of between $18bn and $35bn — are considered as potential acquisition targets for 3G by several analysts, who would expect any of these three to be rolled into Kraft Heinz.
However, given Kellogg and Campbell Soup have capital structures that would make it hard for a 3G-backed entity to buy either company unless a deal is friendly, General Mills is believed to be a more realistic takeover target.
One person who has spoken with 3G’s managing partners said recently the group has been looking at the possibility of setting up a “new platform”, which meant it could opt to acquire a company without rolling it up into Kraft Heinz.
In the personal care and household products category, potential takeover targets for 3G could include Colgate-Palmolive, Kimberly-Clark and Clorox. These three all have market valuations well below $150bn, which is what Kraft Heinz would likely have had to pay to win over Unilev