The Kraft Heinz offer for Unilever, which disappeared as
suddenly as it arrived after Unilever adamantly said no, has observers wondering about motivations, contemplating the impact of the eventful non-event and pondering what may be next for both
companies.
“Kraft Heinz's interest was made public at an extremely early stage,” Kraft Heinz spokesman Michael Mullen said after the merger proposal was killed by
Unilever Sunday. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus
on their own independent plans to generate value,” Charisse Jones reports in
USA Today.
Putting the same result a different way: “One well-placed source said Unilever had gone ‘on the offensive,’ catching Kraft Heinz unawares and
forcing the company to ‘wave the white flag,’” writes
Rob Davies for the Guardian.
In any event, “deal talks between Kraft Heinz Co. and Unilever PLC are dead, but both consumer-goods giants now find themselves
under heightened pressure to make bold moves to accelerate growth,” write
Saabira Chaudhuri and Annie Gasparro for the Wall Street Journal.
“Unilever made clear it didn’t want to pursue a tie-up, but investors in recent years have
encouraged the Anglo-Dutch maker of Ben & Jerry’s ice cream, Dove soap and Axe deodorant to sell
underperforming businesses or do a large acquisition to boost its shareholder returns, which have lagged behind other European home and personal-care companies,” they
continue.
Kraft Heinz, meanwhile, is “running out of costs to cut, leaving investors hungry for another deal.”
Billionaire investor Warren
Buffet and Brazilian buyout firm 3G Capital “have built Kraft into the world's fifth-largest food and beverage company through acquisitions followed by a relentless drive to boost profit
margins. While this cost cut-driven business model wowed industry observers, it appears to be reaching its limits, with Kraft's sales stagnating and margins flattening,” Reuters’ Lauren
Hirsch explains.
“Perhaps Kraft will now acquire another medium-sized U.S. food company,
like General Mills, Kellogg, or Mondelez International. But after three years, this M&A ‘beast’ will need to be fed once again, and the number of attractive U.S. targets is getting
smaller,” Sanford C. Bernstein analysts wrote in a note cited by Hirsch.
“The story is ‘far from over,’” Daniel Lacalle, chief investment officer at
asset manager Tressis Gestion tells CNBC's Squawk Box, reports CNBC’s Gemma Acton. “I don't
see how [Unilever] remains independent in the next five years,” he added.
Meanwhile, Citi analysts believe “there are other options available to the owner of widely
popular Kraft cheese sticks and Heinz tomato ketchup” such as making a deal for, say, Unilever’s Food and Refreshments business (if both parties agree),” Acton writes.
Would a merger have worked? asks Forbes
contributor Julian Birkinshaw.
“Many observers said the two companies have very different cultures and strategies, which is true. But I would go further,” says
Birkinshaw, who is affiliated with the London Business School Review. “I think the bid was actually a contest between two different models of capitalism. And it is good news — for
the sake of capitalism as a whole — that there was no outright winner, and that Kraft Heinz and Unilever continue to do things their own way.”
For a humorous look at
what might have been, check out CNN Money’s Paul R. La Monica, representing Kraft Heinz, and Richard Quest, wearing the Unilever flag, tooling around a grocery store while chiding each other about the merits
of their respective respectable brands.
In the end, “companies must recognize — as Berkshire and 3G seem to have done — the world has changed. The Brexit
vote and the election of Donald Trump both indicate popular unhappiness with global capitalism’s hard edges,” according to an FT View posted yesterday. “This means that governments will make life difficult for companies that make those edges
particularly visible. From the point of view of global prosperity, this is probably too bad. All the same, companies that fail to acknowledge that the rules are changing will be made to
suffer.”
Join the crowd.