Business World

Tuesday 12 December 2017

Unilever boss faces long fight after failed bid by Kraft Heinz

Unilever ceo Paul Polman
Unilever ceo Paul Polman

Thomas Buckley

The collapse of Kraft Heinz's $143bn (€134bn) bid to form a global food giant could prove to be just the first step in a long campaign for Unilever ceo Paul Polman. Having fended off the unsolicited approach after a 48-hour skirmish, Polman now has six months in which to demonstrate to shareholders that the owner of brands such as Ben & Jerry's ice cream and Dove soap is better off on its own.

Once that window of protection provided by UK takeover rules expires, Unilever could face new Kraft Heinz proposals.

In a sign that investors still expect some dealmaking, on Monday Unilever shares lost only about half their gains from Friday, when the US company disclosed its approach. Kraft Heinz withdrew its offer on Sunday, saying an early leak complicated its takeover ambitions. "We expect the seismic shock to reverberate for a while yet," Martin Deboo, an analyst at Jefferies, said in a note. "Kraft Heinz might yet offer a welcome home for some or all of Unilever's foods assets."

One possibility would be to separate Unilever's food operations, from home- and personal-care units including Dermalogica skin care, Alan Erskine, an analyst at Credit Suisse, wrote in a note to investors. That would effectively undo the 1929 agreement that combined a British soap firm and a Dutch margarine maker to create Unilever and could provide freedom for mergers and acquisitions.

The decision not to pursue what could have been the largest takeover in the food and beverage industry came after private-equity firm 3G Capital and billionaire Warren Buffett's Berkshire Hathaway, which together own about half of Kraft Heinz, decided that Unilever's negative response made a friendly transaction impossible, people with knowledge of the situation said. Both also believed that a protracted war of words would risk souring future deal opportunities.

Despite the rare instance of Buffett failing to secure a takeover target - Polman will face pressure from investors to accelerate growth and raise Unilever's profit margins. While Polman has already announced cost-cutting plans, he may raise those targets, said James Targett, an analyst at Berenberg.

"The only thing Kraft Heinz could have brought was higher margins," Targett said. While there were minor concerns about opposition from the UK government, according to one source, Kraft Heinz was optimistic that it could win backing with a friendly deal.

"Kraft Heinz's interest was made public at an extremely early stage," spokesman Michael Mullen said. "Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction."

Unilever, in rejecting the $50-a-share offer, said the proposal "fundamentally undervalues" the household-products maker. The bid would have created the second-largest packaged foods business globally after Nestle SA. (Bloomberg)

Irish Independent

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