Why Unilever may have turned its back on Kraft Heinz

Unilever was all smiles when Kraft Heinz abandoned its attempt to buy the Anglo-Dutch consumer company for $143bn (€134.6bn).

In an unusual joint statement, the two companies referred to their high regard for each other. 

This isn’t how bitterly contested takeover situations normally end. 

Why would Unilever help Kraft Heinz save face, given it manifestly doesn’t want to be acquired, let alone by the US ketchup maker?

However, it looks like it may need something from Kraft Heinz one day, and is showing the world the pair could do business. 

One possibility: CEO Paul Polman has a sale of its food assets in mind, and needs to keep potential buyers sweet.

Kraft Heinz is all food. Almost 60% of Unilever’s revenue comes from personal products and homecare, things like soap and washing powder. 

A sale of the food business would let Polman preserve the company’s independence, while meeting Kraft Heinz’s need for a deal offering plenty of margin expansion potential.

So why not do such a deal now?

Perhaps Kraft Heinz wasn’t keen, or it really wanted Unilever’s faster-growing household products and personal care assets. 

Or, it’s possible Polman wasn’t ready. Conceivably, Unilever wants to bulk up its household and personal care operation before selling the food business. How could it achieve that? 

A purchase of New York-based Colgate-Palmolive would fit the bill. With a market value of $64bn, it’s about half Unilever’s size, and would be a strategic match.

Buying a big US name might seem tricky in the current climate, but a generous offer may assuage Colgate’s managers, making the politics easier. 

There is a messier way of getting to the same result — a deal with Swiss peer Nestle. The world’s largest food group has a market value of 228bn Swiss francs (€214bn).

At the very least, it might make sense for the two companies to merge most of their food operations into a joint venture and spin that off, or sell it. 

There are surprisingly few overlaps: The Swiss have mostly exited ice-cream outside north America, while Unilever still makes choc-ices, for instance. 

An all-food combination would have combined sales of €32bn. It could be worth €63bn, based on the average sales multiple for the industry.

Ulf Mark Schneider, Nestle’s newish CEO, has indicated he is not in the market for big deals, so no one should hold their breath. 

However, a full merger of the pair, with a spinoff of the food unit, would create a global group focused on the faster-growing businesses of personal care, pet care and food supplements.

- Bloomberg


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