Unilever shares tumble 8 pct after Kraft Heinz ditches bid

Share

Alongside equity from veteran investor Mr Buffett, 3G typically secures large amounts of debt to finance its deals by raising borrowings against a target company's balance sheet.

After making an initial £115bn bid, Kraft Heinz was widely expected to come back with a second offer for the manufacturer of major British brands such as PG Tips and Marmite.

The US company released a statement on Sunday revealing that the deal would not go any further, confounding expectations that Kraft would return with a better offer after Unilever resoundingly rejected its opening bid.

"It would appear that Kraft Heinz have underestimated both the intrinsic value of Unilever and the challenge of acquiring control of a Dutch company whose stakeholders would have opposed such a move vociferously", said Martin Deboo, a consumer goods analyst at Jefferies International. Our intention was to proceed on a friendly basis, but it was made clear Unilever did wish to pursue a transaction.

Unilever is the fourth largest seller of packaged food worldwide - behind Nestle, PepsiCo, and Mondelez - and Kraft Heinz is the fifth.

Warren Buffett's Berkshire Hathaway and 3G Capital own 50.9% of Kraft Heinz.

The other 40 per cent of the consideration consisted of shares in the enlarged company.

Unilever Chief Executive Officer Paul Polman, who managed to fend off the unsolicited approach from Kraft Heinz after a 48-hour skirmish, now has six months to prove to shareholders his decision was correct. It has a market capitalisation of about $65bn.

Kraft Heinz's stock (NASDAQ: KHC) climbed 10.74% or $9.37 at $96.65 in the market, reaching a high of $97.77 with a market cap of $112.72 billion and dividend yield of 2.48%.

Despite this setback, analysts still believe that Kraft is in the market for acquisitions in hopes of breathing new life into the firm, The New York Post reports.

Part of the challenge is the proliferation of smaller food makers marketing products that seem more wholesome, which makes it harder for the established companies to drive up sales simply by selling more of well-known products or by raising prices, as they have in the past.

The two companies announced the development, saying that Kraft Heinz had "amicably" withdrawn its acquisition offer for its rival, AP reported. While Unilever has some CPG items, such as Hellmann's Mayonnaise and Lipton Tea, the European company's main business is built on home and personal care items.

Share

Advertisement

© 2015 Leader Call. All Rights reserved.