Many expected Kraft Heinz to make a move, perhaps to acquire General Mills, Kellogg or even Deerfield-based Mondelez International.
But Kraft Heinz had bigger plans, as revealed early Friday morning when the company confirmed its $143 billion takeover bid for Unilever, maker of Hellmann’s Mayonnaise and Lipton Tea among many other brands.
Unilever said no. But Kraft Heinz, co-headquartered in Chicago and Pittsburgh, said Friday that it would still work to reach an agreement on the terms of a transaction. For Kraft Heinz, backed by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital, the sheer size of the proposed deal reveals the tremendous ambition of a company that’s already changed the food industry through aggressive cost-cutting and profit margin expansion.
A Kraft Heinz-Unilever tie-up would represent the second largest deal on record and the largest ever in the food and beverage industry, according to Dealogic, which tracks mergers and acquisitions.
Kraft Heinz, which mostly does business in the U.S., would gain more access globally to developing markets and presumably would look to squeeze costs from Unilever. Kraft Heinz, maker of Kraft Mac & Cheese and Heinz Ketchup, is well known for its "zero-based budgeting" approach in which all costs have to be routinely justified.
Analysts appeared to have mixed reactions on whether such a merger would come to pass, despite Unilever’s initial rejection of the $50-a-share proposal.
"From our vantage point, it is far from certain whether a deal is imminent, and even if one is inked, it is unlikely to be completed at the initial proposal," said Erin Lash, a Morningstar analyst, in a research note Friday.
Glenview-based Mead Johnson, maker of baby formula, sold to British firm for $16.6 billion Greg Trotter
The British parent company of the top-selling condom globally is poised to acquire the company known for the world’s leading infant formula brand.
In the wee hours of Friday morning, Glenview-based Mead Johnson Nutrition, producer of Enfamil infant formula, announced it reached an agreement to…
The British parent company of the top-selling condom globally is poised to acquire the company known for the world’s leading infant formula brand.
In the wee hours of Friday morning, Glenview-based Mead Johnson Nutrition, producer of Enfamil infant formula, announced it reached an agreement to…
(Greg Trotter)
Lash said it’s unlikely Kraft Heinz will walk away, but a higher bid would be needed to bring Unilever to the table. Buffett’s Berkshire Hathaway firm could provide financing to make the deal more "palatable," she said.
Pablo Zuanic, an analyst with Susquehanna International Group who noted 3G-backed Anheuser Busch InBev’s recent $100 billion acquisition of SABMiller, said in a research note: "(We) would expect (Kraft Heinz) to persist and a deal to eventually happen."
Zuanic also said the deal reduces the likelihood of Kraft Heinz pursuing companies such as Deerfield-based Mondelez, General Mills, Campbell’s Soup and Kellogg’s.
In December, a Swiss magazine reported that Kraft Heinz was in talks to acquire Mondelez. Mondelez came into existence when Kraft Foods split into two publicly traded companies in 2012. The spun-off North American grocery business, Kraft Foods Group, later merged with Heinz to become Kraft Heinz.
What does Kraft Heinz’s bid for Unilever mean for Mondelez, the global snack company known for Oreos and Ritz crackers?
"They have more room and time to focus on their profit margin expansion story," Zuanic said in an email.
Across the food industry, large consumer packaged-good companies have struggled mightily in recent years to grow sales. Increasingly, consumers have opted for fresh fruits, vegetables and proteins, as well as new packaged food items they consider to be healthier than traditional brands.
It’s forced large food companies to revamp old brands, cut costs and consolidate, said Bob Goldin, partner at Pentallect, a Chicago-based strategic consulting firm for food companies. Gone are the days when such companies would try to drive sales growth through new products, he said.
"Now it’s just, we better figure out how to juice up the bottom line because there’s nothing happening with the top line. I think the prospects for top-line (sales) growth are very, very bleak for any of these companies," Goldin said.
3G Capital — founded by Brazilian executives Jorge Paulo Lemann, Marcel Telles, Carlos Alberto Sicupira, Roberto Thompson and Alex Behring — has engineered a series of huge transactions in the food-and-drink industries in which they acquire companies, install managers and slash expenses. 3G also acquired Burger King Worldwide and in 2014 merged it with Canadian doughnut chain Tim Hortons.
Kraft’s overture follows the worst annual performance of Unilever’s stock last year since the financial crisis in 2008. The shares fell 2.5 percent in the course of 2016, though European rival Nestle fared only marginally better, losing 2 percent in the same 12 months.
Kraft Heinz stock soared more than 7 percent to almost $94 per share in midday trading Friday.
Associated Press contributed.
gtrotter@chicagotribune.com
Twitter @GregTrotterTrib
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