Kraft Heinz recently proposed a $143 billion takeover deal to Unilever, valuing its shares at $50, an 18% premium. Unilever rejected the offer citing low valuation.
Why the brouhaha over this deal?
The deal, if successful, would have been the third largest corporate mergers of all times.Investors saw value in the deal that would combine Unilever’s international / emerging market strength with Kraft’s U.S. focus. The announcement led to Kraft shares rising 11% and Unilever’s shares rising 15% on Friday. But Unilever was quick to reject the offer, and its shares plunged 7% on Monday.
Beyond Unilever’s rejection:
The deal could still have faced multiple hurdles:
1) Their corporate cultures are very different. While Kraft has a reputation of severe cost cutting irrespective of its impact on jobs, Unilever is known for its adherence to CSR irrespective of its bottom line impact.
2) Political / regulatory environment could have been non-conducive. The takeover of Cadbury by Kraft in 2010 was controversial given its decision to close Cadbury’s Bristol-based led to the revision of UK takeover laws in 2011, granting more protection to target companies and deal scrutiny for job cuts. Further, the pound’s 17% plunge vs dollar has made British companies an attractive target for US / Asian businesses and such deals could possibly result in the transfer of ownership of “British jewels” to foreign hands, sparking public / govt. debate
3) Turning the friendly bid hostile would have proved costly to Kraft. A public battle would be damaging to its image