Kraft Heinz Co.’s $143-billion bid for Unilever NV collapsed just two days after it became public knowledge, with the adamance of the Anglo-Dutch target’s rejection said to play into billionaire Warren Buffett’s longtime aversion to hostile deals.
The decision not to pursue what could have been the largest-ever takeover in the food and beverage industry came after 3G Capital and Buffett’s Berkshire Hathaway Inc., which together own about half of Kraft Heinz, decided that Unilever’s negative response made a friendly transaction impossible, leaving no choice but to walk away, people with knowledge of the situation said.
Both also believed that a protracted war of words wasn’t in the best interest of Kraft and would risk souring future deal opportunities, the people said, asking not to be named because the process was private.
While there were minor concerns about opposition from the UK government, according to one of the people, the companies were optimistic that they could win the backing of Westminster with a friendly deal. Prime Minister Theresa May had asked officials to study the proposed takeover in the wake of the country’s vote to exit the European Union.
“Kraft Heinz’s interest was made public at an extremely early stage,” spokesman Michael Mullen said Sunday in an e-mailed statement. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”
Representatives for Omaha, Nebraska-based Berkshire Hathaway and 3G, based in New York and Sao Paulo, didn’t respond to messages seeking comment Sunday.
Unilever, in rejecting the $50-a-share offer, said the proposal “fundamentally undervalues” the household-products maker. Its management fretted behind the scenes about the cost-cutting model at Kraft, which sells products like Velveeta and Jell-O, and its lack of vision for cultivating brands, people familiar with the situation said.
Shares of Unilever jumped 13 percent to close Friday at a record 44.80 euros ($47.61) in Amsterdam. Kraft Heinz, based in Pittsburgh and Chicago, climbed 11 percent to a record in New York trading.
Kraft’s overture followed a 2.5-percent decline for Unilever’s stock in 2016, its worst annual performance since the financial crisis in 2008. Shares of European rival Nestle SA fared only marginally better, losing 2 percent.
The quick withdrawal of Kraft’s offer is surprising because Unilever’s defenses weren’t very formidable, such as its low stock ownership by management, said Ken Shea, a senior analyst at Bloomberg Intelligence. Kraft’s credibility may take a hit going forward, he said.
“The strange episode suggests that Kraft Heinz acted a bit hastily with its takeover plan, and evidently did not think it fully through,” Shea said. “Also, the timing and size of the bid”•coming just after its earnings conference call on Wednesday last week, in which it downplayed the need for acquisitions”•likely leaves their Wall Street credibility diminished.”
The proposed deal would have created a company with combined sales of $84.8 billion last year, second only to Switzerland-based Nestle. The business would be a packaged-food giant, encompassing brands like Kraft Macaroni & Cheese, Heinz Ketchup, Ben & Jerry’s ice cream and Marmite, a concentrated yeast extract spread.