Failed Kraft plan puts the focus back on Unilever

The collapse of Kraft Heinz Co’s $143 billion (€134 billion) bid to create a global food giant could be just the first step in a long campaign by Unilever chief executive Paul Polman to keep investors on his side.

Having fended off the unsolicited approach after a 48-hour skirmish, Mr Polman now has six months in which to demonstrate to shareholders that the owner of such brands like Ben and 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 proposals from Kraft Heinz.

In a sign that investors still expect some dealmaking, Unilever shares on Monday lost only about half their gains from Friday, when the US company disclosed its approach. Unilever’s market value in London rose to about £107 billion (€125 billion) Monday, about £7 billion more than at Thursday’s close. Kraft Heinz on Sunday withdrew its offer, 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.”

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Food operations

One possibility would be to separate Unilever’s food operations, which contain stagnant brands such as Flora spreads, from home- and personal-care units including Dermalogica skincare, wrote Alan Erskine, an analyst at Credit Suisse, in a note.

That would effectively undo the 1929 agreement that combined a British soap provider and a Dutch margarine maker to create Unilever and could give each arm more freedom for mergers and acquisitions. The fall in the pound since the UK’s vote to leave the European Union could make sales of Unilever assets more affordable to US and other buyers.

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 Inc, 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 wasn’t in the best interest of Kraft and would risk souring future deal opportunities, the people said, asking not to be named because the process was private.

Bloomberg