Following the news about Reckitt Benckiser’s takeover of Mead Johnson earlier this month, last week Kraft Heinz announced that they made a merger offer for Unilever. Unilever rejected the offer on the basis that the proposal fundamentally undervalued the company and the group sees no merit, either financial or strategic, for its shareholders. The proposal from the owner of notable brands such as Philadelphia cheese and Heinz baked beans valued Unilever, the world’s 4th largest consumer goods company by sales, at approximately $143 billion. A combination of the two companies would have been the third-biggest in history and the largest acquisition of a Britain-based company.
Kraft Heinz officially withdrew its offer shortly after and it blamed the rejection on early leaks of the offer, which thwarted efforts for a friendly negotiation. The group was forced to publicly disclose its offer last Friday to comply with regulations, after rumours of its approach circulated among stock traders. Under UK takeover rules, this leaves Kraft Heinz unable to revive talks for six months, although Unilever has made it clear that it does not see the basis for any further discussions.
The proposal was also scrutinised by the UK government as Theresa May ordered senior officials to examine the proposed takeover to see if it warranted government intervention. Mrs May had already called for greater powers to prevent predatory takeovers, citing Kraft Foods’ takeover of UK chocolate maker Cadbury in 2010, where the acquirer later defaulted on promises to retain factories in Britain, which led to significant job cuts.
With a weakened pound, good quality UK companies are currently looking attractive to overseas buyers. Key considerations for long term holders of a company in a prospective takeover are the potential synergies for the two companies and whether the offer price represents good long-term value.
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