Yahoo Finance Unilever shares fall 7pc after Kraft Heinz backs down
Unilever's shares tumbled after Kraft Heinz called off its £115bn pursuit of the Anglo-Dutch company amid political opposition to the deal, leaving the US food giant on the lookout for acquisition targets closer to home.
Shares in Unilever, which is dual-listed in London and Amsterdam and home to brands such as Marmite and Hellmann's mayonnaise, fell by more than 7pc following a joint statement by the two companies on Sunday which said Kraft Heinz had "amicably agreed" to withdraw its proposal.
The proposed tie-up was expected to meet strong political opposition, with speculation over the weekend that Theresa May, the Prime Minister, had ordered officials to examine the deal and whether it needed government intervention.
Dutch Prime Minister Mark Rutte, who used to work at Unilever, had also said he would examine what it would mean for the Netherlands.
However, Downing Street yesterday said it was not involved in Kraft Heinz's decision to withdraw.
Martin Deboo, an analyst at Jefferies, said it was surprising that Kraft Heinz, which is backed by 3G Capital, a Brazilian private equity firm, and US mogul Warren Buffett, had pulled back so quickly.
"3G have this reputation of being decisive and successful deal-makers so for them to walk away from a deal at an early stage is a surprise," he said.
"However, they were making a very low offer for Unilever and they just seemed to me to have underestimated what a storm it would cause in Europe, not least in Holland, where takeover rules are more restrictive and more stakeholder-friendly than in the UK, and [which] would have made life difficult for them."
It now looks unlikely Kraft Heinz will go back to the table with a higher offer, according to some analysts.
They say the prospect of a drawn-out process, that would ultimately have damaged both companies, has firmly put the kibosh on any future deal.
"Maybe they realised the price would have been too high to be feasible or that the corporate culture would be too different or too much of a hurdle and that created a long and convoluted process that would ultimately damage both companies," said Raphael Moreau, a food analyst at Euromonitor.
copy of Unilever and Kraft-Heinz merger graphic
"There are also elections happening in Netherlands soon, so while the timing was right financially, politically it was a more difficult situation and that is unlikely to change in six months."
Given the sheer size of Unilever, Mr Moreau said it was highly unlikely any other company would have the financial muscle to field an acquisition.
Kraft Heinz, on the other hand, is still in the market for acquisitions.
The overall strategy of 3G Capital, which holds about 24pc of Kraft Heinz, to acquire companies and then brutally cut costs through rationalising operations and firing staff in order to increase profits. This means it constantly needs to make acquisitions.
Possible targets now include American companies General Mills, Kellog's and Campbell's, according to analysts.
There is also the prospect that Kraft Heinz might attempt to remerge with Mondelez, a business Kraft spun off in 2012 after acquiring Cadbury's, but before it was snapped up by Heinz.
Profiles | the main players at Kraft and Unilever
"Their portfolios would be very complementary as Mondelez is mostly in confectionery," said Mr Moreau.
But the bid is also a "timely reminder" for European companies that they need to up their game and be more aggressive on cutting costs - or risk somebody else swooping in to do so for them.
"I think that while it feels like Kraft Heinz have gone away and everyone can breath easy, it feels to me things have changed for Unilever and for the rest of the European consumer goods industry," said Mr Deboo.
"3G have raised the bar in terms of what you can squeeze out of a consumer goods company and in these times when topline growth is hard to come by, Unilever would do well to heed the importance of this."
A merger with Kraft Heinz, which owns brands such as Planters nuts and Heinz tomato ketchup, would have created a company with a market value accounting for roughly a quarter of the $1 trillion global packaged food index, according to figures from Bloomberg Intelligence. It would also have been the biggest acquisition of a British company on record.
