Had Kraft Heinz (NASDAQ:KHCC) not withdrawn its $143 billion takeover offer to acquire Unilever (NYSE:ULF), the merged company would have rivaled Nestle as the world’s largest packaged food maker by sales.
Instead the much-discussed, controversial merger goes on the scrap heap of recent M&A deals gone wrong. Here are some of the details.
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Behind The Attempt
Kraft Heinz initiated talks with Unilever for several reasons mostly based on a desire to achieve growth in a challenging environment. One undisputed big reason has to do with shifting consumer tastes in food. Kraft Heinz has faced challenges competing with smaller companies offering more fresher more wholesome food products.
Further stifling growth has been the inability of Kraft Heinz to raise prices due to stagnant inflation in the markets where it operates or to sell more products thanks to the afore-mentioned competition from smaller producers.
Why The Deal Failed
In a short statement issued Sunday Kraft said it had “amicably agreed to withdraw its proposal.” When Unilever rejected the offer, saying the two companies’ opposing business models precluded a merger, Kraft said, “it was best to step away early so both companies can focus on their own independent plans to generate value.”
Specifically, Unilever said it saw growth coming from investment in its home and personal-care product line while Kraft has placed emphasis on cutting costs to increase revenue. This clarification came after Kraft initially concluded Unilever’s opposition had mostly to do with opposition to price.
What’s Next For Unilever
Unilever is the world’s second-largest consumer-goods firm by sales after The Procter & Gamble Co. (NYSE:PGC). Unilever CEO Paul Polman has more than doubled the company’s share price by shifting into higher-end personal-care products and away from food.
Polman has also shown interest in environmental sustainability, a move that has rankled some investors. Currently emphasis has been on cutting costs via zero-base budgeting which involves justifying costs from scratch every year.
A push into emerging markets has not shown strong results. For example emerging markets improved 5.6% in Q3, lower than the 7.7% growth shown in Q2.
What company has been doing right is to concentrate on improving products through innovation. This includes introducing new products as well as relaunching existing products with significant improvements. Added to all this has been serious attention to cost containment measures. This includes both shedding assets and acquisitions designed to achieve growth.
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Next Steps For Kraft Heinz
The big question for Kraft Heinz has to do with where the company will look for acquisition growth now that the Unilever deal appeals dead. There were rumors in December that Kraft Heinz was looking to acquire snacks giant Mondelez International (NASDAQ:MDLZC). At the time Mondelez shares rose 4.4% on the rumor.
A number of other consumer products stocks are attracting investor interest, possibly due to takeover speculation. These include Colgate Palmolive (NYSE:CLC), Clorox (NYSE:CLXC) and Kimberly-Clark (NYSE:KMBC) all of which had a bump in share prices following the collapse of the Kraft Heinz/Unilever deal.
With Warren Buffett's Berkshire Hathaway (NYSE:BRK-BD) and Brazil's 3G Capital owning 50% of Kraft Heinz stock, attention will likely turn to future comments from either source for hints to next moves for KHC.