It is fair to say that Kraft Heinz’s £115bn tilt at Unilever lasted about as long as it takes me to eat one of Unilever’s Magnum ice-creams. Basically it was gone almost as soon as it arrived.
Having confirmed speculation last Friday afternoon that it had made a takeover approach, US food maker Kraft Heinz had walked away by early Sunday evening. What could have been the second-largest takeover in history had fizzled out in less than 72 hours.
Both companies said they had “utmost respect” for each other and held each other in “high regard” in a statement that read like a textbook example of corporate spin. Deep down Unilever thinks Heinz is an opportunistic predator that has a poor history of investing in its brands and which is backed by 3G Capital, a Brazilian private equity group with a cost-cutting approach so aggressive it has been likened to Edward Scissorhands.
The Americans, on the other hand, no doubt consider that Unilever is an impressive UK company that controls 13 blockbuster brands with sales of more than €1bn and which has delivered a total shareholder return of 45% over the past three years. The Anglo Dutch giant, which makes everything from PG Tips to Dove soap, regularly returns more than €3bn of cash to shareholders each year – and that is after investing €2bn in research and capital expenditure on its factories, many of which are located in Britain.
Unilever has long been a solid company to invest in with a reputation for careful, long-term stewardship and it was right to kick-back a low-ball offer from a company with a vastly different operational culture.
However, it is also clear that Kraft Heinz, and its backers 3G Capital and Warren Buffett, likely made the approach as they saw a company which was maybe a tad too complacent and looking vulnerable following the slump in the pound. As Andrew Wood, an analyst at Bernstein, remarked this week: “How can a €53bn sales company be put under threat from a US corporation less than half its size in sales? How can Paul Polman [chief executive of Unilever] have allowed Unilever to even get close to being acquired by Kraft Heinz and therefore losing over a century of heritage, and of long-term, socially responsible, environmentally friendly and sustainable performance?”
Kraft Heinz’s decision to walk away will have been a relief to Unilever and the government. If the US giant, which has annual sales of more than $25bn, had persisted in its attempt to snare Unilever it would have been a stern test for Theresa May’s new modern industrial strategy. The prime minister said less than a year ago that she would have blocked Kraft Food’s bitterly contested takeover of Cadbury in 2010, meaning she could have come under intense pressure to intervene in the Unilever situation.
Unilever is without question the UK’s biggest “champion” in the food and drink and consumer sectors. If the consumer group had fallen to the Americans it would have meant the next biggest listed British food “champion” was Premier Foods, which is a minnow in comparison, with a market capitalisation of £335m and a host of problems it has been trying to resolve since the recession.
Unilever’s skirmish over the weekend has shown more starkly than ever that British companies are cheaper than ever since the Brexit vote and could play host to acquisitive overseas investors. If the Anglo-Dutch giant, which until this past weekend had seemed an unlikely takeover candidate, is vulnerable, then countless other domestic companies could be as well. Not least because merger and acquisition activity is picking up. According to Thomson Reuters’ most recent weekly investment banking score card, European M&A activity has already hit $113.4bn so far this year, up 7% compared with this time last year.
