Unilever turns down $143bn Kraft Heinz takeover bid

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Deal for Anglo-Dutch consumer group would be one of largest in history

Unilever has rejected a $143bn takeover approach from Kraft Heinz, the food conglomerate backed by Brazil’s 3G and Warren Buffett, setting the stage for a battle between two of the largest consumer goods companies in the world. Sample the FT’s top stories for a week You select the topic, we deliver the news.

The Anglo-Dutch company behind brands such as Dove soap and Ben & Jerry’s ice cream said that the $50 per share cash and stock offer — an 18 per cent premium to its closing price on Thursday — from Kraft Heinz “fundamentally undervalues Unilever”.

It added: “Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions.” The Kraft Heinz approach comes at a sensitive moment for the UK, with its politicians and large businesses trying to navigate the uncertainty of the country’s exit from the EU.

The vote to leave the world’s largest trading bloc has caused a drop in the value of sterling, making UK assets significantly cheaper for non-UK cash-rich acquirers. Unilever has a complex shareholding structure with a dual listing in London and Amsterdam.

Kraft Heinz earlier on Friday confirmed a report on FT Alphaville that the US group had made an approach to Unilever, citing people briefed on the matter. The report caused shares in Unilever to surge, prompting the statement from the US company. Kraft Heinz said it had made “a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living”.

It added: “While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction. There can be no certainty that any further formal proposal will be made to the board of Unilever or that an offer will be made at all or as to the terms of any transaction.”

Unilever said the Kraft Heinz offer consisted of a mix $30.23 per share in cash payable in US dollars and 0.222 new enlarged entity shares per existing Unilever share Shares in Unilever rose 12.5 per cent to £37.59 a share on Friday, giving the company a market capitalisation of £113bn, meaning that any takeover would be one of the largest in history. Its US-listed shares jumped 10.6 per cent to $47.08 in pre-market trading. It is the world’s fourth-largest consumer goods company by sales, with revenues last year of €52.7bn.

Under UK takeover rules, Kraft Heinz has until the close of business on March 17 to make a firm bid or walk away for six months from Unilever. A deal would unite some of the biggest brands in the global consumer goods industry, adding the likes of Dove and Knorr to the Kraft Heinz roster, which spans Philadelphia cream cheese, ketchup and Weight Watchers. News of the approach came a day after Kraft Heinz shares had been poised for their biggest one-day fall since the 2015 merger that formed the company, after it reported a fourth-quarter sales decline and said that it expected to push through deeper cost cuts. Shares in Kraft Heinz fell almost 5 per cent to $86.86 on Thursday on the news that its fourth-quarter sales fell 3.7 per cent from a year ago to $6.85bn in the three months ending in December.

Like many other consumer goods companies, Unilever has been suffering from a slowdown in growth as brand-fickle consumers in mature markets increasingly turn to start-ups for more exciting new products. Emerging markets represent 58 per cent of Unilever sales, more than its peers, and it is heavily dependent on them for growth.

Unilever shares suffer as growth proves elusive Consumer goods group blames difficult markets in India and Brazil It has added premium brands and is exploring new ways of marketing to consumers.

Last year it paid $1bn to buy Dollar Shave Club, as much to increase its presence in the male grooming market as to develop the ecommerce subscription model on which the California-based acquisition is based.

Kraft Heinz came together in a $100bn deal orchestrated by Mr Buffett and Brazil’s 3G Capital in 2015 and has been focused on driving down costs aggressively in the companies it has bought, aiming to save $1.7bn annually by 2018.

Analysts have been predicting further consolidation in the industry and speculating that 3G could strike again, two years after its last big deal, with some seeing Mondelez International as a possible target. Moody’s, the rating agency, recently forecast that global packaged goods companies would eke out revenue growth of just 2.5 per cent this year — which is almost half the industry’s five-year average of 4.8 per cent growth.

But Moody’s said it expected Unilever and rival Reckitt Benckiser, which last week agreed a $17.9bn takeover of Mead Johnson, the US infant formula producer, to outperform the 2017 average. In January, Paul Polman, Unilever’s chief executive, rattled investors after warning of “challenging” conditions in the first half of this year after a sluggish 2016.

Unilever reported a 3 per cent year-on-year rise in pre-tax profits for 2016 to €7.5bn, boosted by a cost-cutting and efficiency drive that lifted core operating profit margins by 50 basis points to 15.3 per cent.

Mr Polman cautioned at the time that the “tough market conditions” would ease only in the second half of the year. “We expect a slow start with growth improving as the year progresses,” he said. The immediate cause of the weakness in the final three months of last year came from India and Brazil: Unilever’s second- and third-biggest markets respectively, accounting for 14 per cent of group revenues.

Additional reporting by Mamta Badkar and Adam Samson in New York

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