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ANALYSIS: What’s next after Unilever snubbed Kraft Heinz?

As Unilever chief executive Paul Polman pushed the potentially record-breaking $143bn approach by Kraft Heinz off the table on Friday (17 February), a knee-jerk media frenzy suggested that the vulture might continue to circle.


Sam Shaw

The very polite joint statement issued said simply: “Unilever and Kraft Heinz hereby announce that Kraft Heinz has amicably agreed to withdraw its proposal for a combination of the two companies.

“Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

Subsequent reports reported that Polman felt the $50 per share bid “fundamentally undervalued” his company.

Amid noise that he faced some firm pressure to turn Unilever’s fortunes around, certain analysts believe he needn’t panic and can return to business as usual.

Charles Pick, fast-moving consumer goods (FMCG) analyst at Numis, said it was perfectly reasonable of Unilever’s management to reject the bid, which only priced the company at a 18% premium to its close the day before, as well as noting its lack of financial or strategic logic.

He added: “It is also thought that the reactions of Unilever shareholders when sounded out were negative given the leverage that would have been involved (the mooted offer was $30.23 in cash plus 0.222 Kraft Heinz shares) for the new entity.”

There was also talk of UK government intervention as Theresa May reminded the nation of Kraft’s earlier form of reneging on one-time promises.

Almost immediately after its takeover of Cadbury in 2010 – shrouded in promises of job security – it closed its Bristol plant and 400 people lost their jobs.

Recent press leaks can’t have helped and shareholder reaction sounds largely negative.

Nicla Di Palma, equity analyst at Brewin Dolphin, said the situation took everyone by surprise.

“No one liked the deal,” she said. “I don’t think Kraft Heinz were quite prepared for the immediacy and extent of the backlash.”

With Kraft Heinz circling an acquisition for some time, the expected targets were Oreo and Belvita parent Mondelez – disposed by Kraft in 2012 – or General Mills, which boasts Green Giant, Häagen-Dazs and Yoplait among its brands.

Unilever is known for its steady, organic growth strategy and relatively ethical stance. As such, some saw it as an understandable – yet mismatched – target for Kraft Heinz.

“Kraft Heinz is about cost cutting and Unilever is about organic top-line growth. You can’t cost-cut your way to growth,” said Di Palma.

“They could halve their ad spend and their margin would expand very quickly, but the brands would disappear. If they stopped advertising, in 50 or 60 years many of their brands would no longer exist.”