Kraft Heinz turned down in €134bn Unilever mega offer

Warren Buffett: Orchestrated Kraft Heinz in a $55bn move.

Kraft Heinz has made a $143bn (€134.5bn) offer for Unilever in what would be the largest-ever takeover in the food or beverage industry, opening a campaign to create a consumer-goods giant with household names from Dove soap to Heinz ketchup.

Unilever said yesterday it rejected the $50 a share proposal, comprising about two-thirds in cash and a third in new stock. The approach “fundamentally undervalues” the company, Unilever said, adding that it doesn’t see a basis for further discussions.

Kraft Heinz said earlier it would seek to gain an agreement on the terms of a transaction. Unilever shares surged as much as 15% to a record in London, valuing the maker of Hellmann’s mayonnaise at more than £113bn (€132bn).

The Anglo-Dutch company’s stock gained as much as 12% in Amsterdam, while Kraft Heinz rallied more than 7% in New York.

The bid underscores consolidation among consumer-goods companies searching for profit-growth strategies as conditions become tougher across the globe.

Kraft Heinz itself was forged in a $55bn combination orchestrated by Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital, which had teamed up two years earlier on a buyout of HJ Heinz.

There had been speculation 3G would look to buy another food company and resume a cost-cutting cycle spearheaded by chief executive Bernardo Hees. Mondelez International, General Mills and Kellogg had been mentioned as potential targets.

“Kraft Heinz’s approach demonstrates the pressure on brand owners to consolidate in the face of international pressure on margins and constraints to organic growth opportunities,” said Paul Hickman, an analyst at Edison Investment Research.

“Kraft Heinz will not have led with its best offer and a protracted negotiation probably lies ahead,” he said.

Berenberg analysts said such a valuation would imply multiples of three times sales and 21 times earnings, “which strikes us as very low”.

Putting together Kraft Heinz and Unilever would create a company with combined sales of $84.8bn last year. That would have ranked second among food and beverage companies, trailing Nestle’s $91.2bn.

The investors behind the Unilever bid, 3G Capital was founded by Brazilian executives Jorge Paulo Lemann, Marcel Telles, Carlos Alberto Sicupira, Roberto Thompson and Alex Behring.

It has engineered a series of huge transactions in the food-and-drink industries. 3G also acquired Burger King Worldwide and in 2014 merged it with the Canadian doughnut firm Tim Hortons.

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