Kraft Heinz, the Warren Buffett-backed food group, has dropped its $143 billion pursuit of consumer products rival Unilever only two days after it publicly confirmed its interest in acquiring the Anglo-Dutch company.
In a joint statement, Kraft Heinz said it had “amicably agreed to withdraw its proposal for a combination of the two companies”. The companies added: “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”
The announcement comes after a report in FT Alphaville on Friday forced Kraft Heinz to publicly confirm it had approached Unilever about a combination to create a juggernaut in packaged foods and household items.
Kraft Heinz said in the statement that 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”.
It added: “It is best to step away early so both companies can focus on their own independent plans to generate value. We remain focused on driving long-term value while always putting our consumers first.”
UK government concerns
Both companies had begun meetings with the UK government over the weekend after British prime minister Theresa May ordered her top officials to examine the proposed takeover attempt to see if it needed government intervention.
The Kraft Heinz bid was a major test for the UK government’s industrial policy, after Mrs May called for greater powers to prevent predatory takeovers, citing the Kraft Foods’ 2010 takeover of UK chocolate maker Cadbury in which the acquirer later reneged on promises to retain factories in Britain.
The Anglo-Dutch company said on Friday that the $50-a-share cash and stock offer, an 18 per cent premium to its closing price on Thursday, from Kraft Heinz “fundamentally undervalues Unilever”.
Two people close to the talks said Warren Buffett and 3G Capital’s Jorge Paulo Lemann, the major Heinz Kraft shareholders, decided on Sunday morning to withdraw the bid after they concluded that a protracted public battle to take over Unilever would have caused more damage than good.
Mr Buffett’s Berkshire Hathaway and Mr Lemann’s 3G control just under 50 per cent of Kraft Heinz shares. The duo, who would have contributed significant new capital to fund the deal, were also spooked by the hostile response from UK politicians who raised concerns about another large British-based company being acquired by a foreign group in the aftermath of the vote to leave the EU, said one of these sources.
Early leak
The other source said the early leaking of Kraft’s interest in Unilever made it hard for the US company to negotiate a deal that would have been attractive for both sides. “Kraft Heinz was ready to make a lot of concessions, including taking on the Unilever name, to make this deal happen but unfortunately it leaked too early and that made it hard negotiate,” the source said.
Both companies began meetings with the British government over the weekend after British prime minister Theresa May ordered senior officials to examine the proposed takeover to see if it warranted government intervention.
The Anglo-Dutch company said on Friday that “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.”
That unusually strong rejection meant the US group faced an uphill battle to strike what would have been the second-largest takeover of all time. One person close to Kraft Heinz said the US company had had a cordial dialogue in the weeks leading up to the proposal, which was made about 10 days ago, and was surprised by the terse language in the public rejection on Friday.
The end of Kraft Heinz’s bid for Unilever also will restart speculation as to the next big acquisition it will make.
