Coverage: Kraft Heinz drops $143 billion bid for Unilever

Kraft Heinz, the Warren Buffett-backed U.S. food group, dropped its $143 billion offer for consumer products rival Unilever on Sunday, only two days after publicly confirming its interest in acquiring the Anglo-Dutch rival.

Arash Massoudi and James Fontanella-Khan of The Financial Times had the news:

Kraft Heinz said in a joint statement with Unilever that it had “amicably agreed to withdraw its proposal for a combination of the two companies”.

A takeover would have created the world’s second-largest consumer goods group by sales behind Nestlé, combining brands such as Kraft Mac & Cheese and Heinz Tomato Ketchup with Unilever’s Dove soap and Magnum ice cream.

The companies said: “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

The announcement came after a report in FT Alphaville on Friday forced Kraft Heinz to confirm it had approached Unilever about a combination to create a juggernaut in packaged foods and household items.

Kraft Heinz said in a separate statement that its “interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.”

Antoine Gara of Forbes reported that Kraft Heinz blamed early leaks for scuttling the deal:

Kraft Heinz blamed its withdrawn offer on early deal leaks, which it said thwarted efforts to negotiate a merger on a friendly basis. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.” said Kraft Heinz spokesman Michael Mullen. “It is best to step away early so both companies can focus on their own independent plans to generate value,” he added in an emailed statement.

On Friday, a report by the Financial Times forced Kraft Heinz to disclose its unsolicited bid for Unilever, a conglomerate with consumer products and foods brands ranging from Axe deodorant to Hellmann’s mayonnaise, Dove soap, Ben & Jerry’s ice cream, SunSilk razor blades and Sun dishwasher fluid. Separately, Unilever said Kraft Heinz had offered $50 a share for the company, split between $30.23 a share in cash payable in U.S. dollars and 0.222 shares in the combined company, valuing the target at $143 billion.

The offer sent U.S.-listed Unilever shares surging 14% in Friday trading, while Kraft Heinz gained over 10%, hitting new record highs. However, the proposed takeover drew quick push back, mostly because Unilever is seen as pioneering in its long-term initiates like sustainability, while Kraft Heinz is known on Wall Street as a ruthless cost-cutter.

When rejecting Kraft Heinz’s proposal on Friday, Unilever said the bid ”fundamentally undervalues” the company and  it “sees no merit, either financial or strategic, for Unilever’s shareholders.”

Chad Bray of The New York Times reported that Unilever believed the offer undervalued the company:

Unilever said on Friday that the offer — an 18 percent premium to its closing price on Thursday — “fundamentally undervalues” the British-Dutch company. It also said it saw no basis for further discussions.

Under British takeover law, Kraft Heinz had until March 17 to announce a formal intention to acquire the company.

The transaction, if it had been completed, would have been the largest cross-border merger since the British wireless provider Vodafone’s $183 billion acquisition of Mannesmann of Germany in 2000.

A combination of Kraft Heinz and Unilever would have created an empire of hundreds of household names, with more than $82 billion in sales.

The withdrawal came after news media reports over the weekend that Kraft Heinz was preparing to meet with some of Unilever’s biggest investors in hopes of winning their support.