Last week's mega-merger announcement, the deliberately leaked acquisition of Unilever by the Warren Buffett-backed Kraft Heinz - a deal which would create a giant consumer goods conglomerate - has fallen apart, following Unilever's adverse reaction to the deal, and speculation that Kraft would not pursue a hostile transaction. As the FT reports, Kraft Heinz withdrew its $143bn pursuit of consumer products rival Unilever only two days after it publicly confirmed its interest in acquiring the Anglo-Dutch company.
The proposed transaction would have been the largest-ever takeover in the food or beverage industry, and would have created a company with combined sales of nearly $85 billion, second only to Swiss giant Nestle.
On Friday, the Anglo-Dutch company said 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”. 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.”
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 statement came days after the deal was widely leaked in advance of Friday's confirmation, as we showed on Friday when we demonstrated a surge in Unilever and Kraft call purchases by certain lucky "information arbitrageurs."
It remains to be seen if the SEC has likewise pulled its probe (or ever started one) into who leaked the transaction ahead of time, and who profited.
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.”
Why was the deal pulled? According to the FT, Buffett and 3G’s Jorge Paulo Lemann "decided on Sunday morning to withdraw their approach for Unilever after they concluded that a protracted public battle to take over Unilever would have caused more damage than good to Kraft Heinz, said two people close to the talks."
Mr Buffett’s Berkshire Hathaway and Mr Lemann’s 3G Capital 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 Brexit, said one of these people.
The FT also notes that the early leaking of Kraft’s interest in Unilever (not just per call option acticity but thanks to a report on the FT's own Alphaville blog) made it hard for the US company to negotiate a deal that would have been more 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 to early and that made it hard negotiate,” said one person close to 3G Capital.
A deal would have brought together the company behind Kraft Mac & Cheese and Heinz Tomato Ketchup with the maker of Dove soap, Ben & Jerry’s ice cream.
Unilever shares jumped 13% to close Friday at a record 44.80 euros in Amsterdam, while Kraft Heinz, based in Pittsburgh and Chicago, also surged 11% to a record in New York trading. US stock markets are closed on Monday.