Unilever has rejected an approach from Kraft Heinz with regards to a potential merger.
The purchase would also help USA -centric Kraft Heinz tap into European and Asian markets, which now make up about 70 percent of Unilever’s annual revenue, and would help it expand beyond food and drink products.
Although Unilever has rejected the approach, Kraft Heinz says it will persist and “looks forward to working to reach an agreement on the terms of a transaction”.
What’s more, a merger of the two brands could prove to be cumbersome.
In its offer, Kraft sought to provide assurances over maintaining its culture of innovation, recognising that this requires investment, and acknowledged that there are limits to cutting costs, one of the people said. The Kraft Heinz Company now has a consensus rating of “Buy” and an average price target of $98.95.
The Kraft Heinz Company (NASDAQ:KHC) plunged -4.19% with the closing price of $87.28. RBC Capital Markets reaffirmed an “outperform” rating and set a $96.00 price target on shares of The Kraft Heinz Company in a research note on Tuesday, November 1st.
In accordance with Rule 2.6 (a) of the trading code, Kraft Heinz has until 5pm today to either announce a firm intention to make an offer for Unilever or that it does not intend to make an offer. The company was forged by a $55 billion combination orchestrated by Warren Buffetts Berkshire Hathaway Inc. and 3G, which had teamed up two years earlier on a buyout of H.J. Heinz. That would make the combined group the biggest food company in the world by market cap, ahead of Switzerland’s Nestle SA, which has CHF228 billion market value.
With Unilever, the company could grow even further by making the transition to household and personal goods such as Q-tips, Dove and Axe.
There is a view that the track record of buyout firm 3G Capital, one of Kraft’s investors, could have hit the deal.
Kraft Heinz’s $143 billion offer to buy Unilever was spurned, but the ketchup, cheese and lunch meat maker is still hungry to expand its domain.
Changing tastes, and in particular a shift away from boxed and canned groceries in favor of items that seem fresher or healthier has been driving consolidation in the food industry. The company reported $0.83 EPS for the quarter, beating the Thomson Reuters’ consensus estimate of $0.74 by $0.09.
Large consumer-goods companies, facing slowing sales around the world, are increasingly under pressure to merge.
The FTSE-100 giant said it had received an offer of $50 per share, consisting of $30.23 in cash and the remainder in shares of the newly formed business, which would represent a premium of 18% on its closing price on Thursday (16 February).