Unilever and Kraft Heinz held talks over food merger uniting ketchup and mayo
Exploration of deal worth tens of billions of dollars reflects struggle of both companies to combat subdued demand
Kraft Heinz and Unilever recently held talks on a megamerger of their food brands that would have brought Heinz ketchup and Hellmann’s mayonnaise together under the same roof, as the consumer goods giants struggle to reshape their portfolios to cater to shifting tastes.
The discussions between the companies in recent months, which have now ended, were over a merger of Unilever’s food business and Kraft Heinz’s condiments division, according to people familiar with the talks.
A combination would have created a new entity worth tens of billions of dollars.
The exploration of a merger underscores the extent to which both Kraft Heinz and Unilever are struggling against subdued demand from increasingly health-conscious consumers, who are shifting their spending away from packaged food brands.
Over the past decade Unilever has gradually pivoted away from food towards beauty and personal care brands. The FTSE 100 group, which still owns Marmite and Knorr, has carved out its spreads, tea and ice cream divisions.
Unilever’s new chief executive Fernando Fernández did not rule out the possibility of disposing of the Anglo-Dutch company’s entire food business when questioned on his intentions in December. The company is in the process of selling up to $1bn worth of smaller food brands, leaving Hellman’s and Knorr making up around 75 per cent of the division.
Jefferies analysts estimate the value of a standalone Unilever food business at $36-37bn, representing an enterprise value-to-ebitda multiple of 9.5 times.
Kraft Heinz, which has struggled since a landmark merger orchestrated by Warren Buffett and 3G Capital a decade ago, is also in the midst of its own strategy shift.
The talks with Unilever took place ahead of the US company’s decision in February to halt a planned break-up and commit to invest $600mn behind a turnaround under chief Steve Cahillane, who joined in January.
The proposed split would have separated its slower growth grocery-store staples, such as Oscar Mayer meats and Lunchables meal kits, from its faster-growing sauces, spreads and seasonings business, which houses Heinz ketchup and Philadelphia cheese. Kraft Heinz also sells mayonnaise under both the Kraft and Heinz brands.
Cahillane said in February that he was focused on returning Kraft Heinz to organic growth, which would give the business a broader range of options to reshape its portfolio next year.
As consumers move away from processed foods or trade down to supermarket own brands, consumer groups are attempting to reorient themselves around faster-growing businesses.
Unilever last year spun off its ice cream division into a standalone entity and acquired faster-growing brands, such as men’s grooming brand Dr Squatch.
Unilever declined to comment. Kraft Heinz did not immediately respond to requests for comment.