US food giant Kraft, which swallowed up Britain’s Cadbury in 2010, has failed – for now – to do the same to Unilever. Ben Judge reports.
American food behemoth Kraft Heinz surprised the markets last week with a $170bn takeover bid for Anglo-Dutch consumer goods and food conglomerate Unilever, whose brands include Marmite and Ben & Jerry’s. But it faced fierce resistance from Unilever’s management, as well as from politicians in the UK and the Netherlands. Forty-eight hours after making its offer, Kraft withdrew it.
In Britain, Kraft is remembered for “reneging on a jobs promise” after its takeover of Cadbury in 2010, said Nils Pratley in The Guardian. No wonder politicians weren’t impressed. If billionaire Warren Buffett and Brazilian private-equity firm 3G Capital, Kraft Heinz’s major shareholders, “couldn’t see outrage” looming, “they were astonishingly naïve”.
Buffett and 3G have “come to epitomise the ‘citizens of nowhere’ style of capitalism that has helped trigger populist revolts across the globe”, agrees Lex in the Financial Times. No politician could be under any illusion that Kraft Heinz intended to cut costs and eliminate jobs, adds an FT editorial. “That is simply what Kraft Heinz does.”
It was a “ridiculously low” offer in any case, as Allister Heath points out in The Daily Telegraph. It succeeded only in “terminally alienating Unilever’s management”. The structure of the deal was “laughable”. Unilever shareholders were offered cash, but as much of the money would be raised by “massively leveraging up the business”, they were effectively lending some of the cash back to Kraft Heinz. The Americans’ business model also leaves a lot to be desired.
It has little to do with organic growth – that would require “spending on factories, research and development and marketing”. Kraft prefers “leveraging up, slashing costs [and] moving on to another target”. Although Unilever’s approach isn’t perfect, it’s a lot better than Kraft’s. Its “investment and growth model” has returned more to its shareholders – 45% in three years – than most of its main competitors.
Still, the bid was a “wake-up call” for Unilever, which “needs to step up a gear”, say Andrea Felsted and Chris Hughes on Bloomberg.com. Paul Polman, Unilever’s chief executive, is “on notice”. Under UK takeover rules, Kraft Heinz can’t make another bid for six months, but it will probably be back. Its approach has made clear that there is “fat to be cut” at Unilever, which Polman must now cut himself. He could sell its “under-performing” spread business, for instance; a more radical option could be to bring forward his own retirement. The shares have lagged the FTSE 100 for most of the past year, and investors’ patience won’t last forever.
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