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Unilever surges on Kraft Heinz's $143bn takeover bid

Unilever surges on Kraft Heinz's $143bn takeover bid

by Daniel Grote Feb 17, 2017 at 16:25

Update: Shares in Unilever (ULVR) have surged after Kraft Heinz (KHC.O) launched a sensational $143 billion (£115 billion) takeover bid for the consumer staples giant.

Unilever jumped 13.4% to £37.97, helping to drive the FTSE 100 22 points, or 0.3%, higher to 7,300 on news of the bid, which Unilever has rejected.

Kraft Heinz said in a statement: 'Kraft Heinz confirms that is has made a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living.

'While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction.

Unilever said it saw 'no merit, either financial or strategic' in the offer, which represented a premium of 18% to its share price at yesterday's close.

'This is cheap money meeting industrial logic,' said Steve Clayton, manager of the HL Select UK Shares fund, who holds Unilever in his portfolio.

'Kraft Heinz are attempting a massive push on the fast forward button, for to acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades,' he said. 'With debt cheap and abundant right now, Kraft have spotted their opportunity.'

Michael Hewson, chief market analyst at CMC Markets UK, said any deal would likely face barriers, even if Kraft Heinz were able to secure agreement from Unilever.

'The deal is likely to prompt a Marmite response, with the markets loving the idea given the share price reaction, there is a good chance that government will hate it, and it is inevitable that competition authorities and regulators will want to have a look at it,' he said.

'There will undoubtedly be competition concerns given how big any new company would be,' he added. 'A combined company would be huge in terms of the number of brands, not to mention pricing power.'

Michael van Dulken, head of research at Accendo Markets, agreed. 'The deal may prove less about finances, synergies and corporate merit, and rather more so about politics and hurdles,' he said.

'Theresa May will surely baulk at an opportunistic pounce being made thanks to a Brexit-induced weak pound making this deal 15% cheaper than it would have been a year ago,' he said.

Paul Hickman, analyst at Edison Investment Research, said Kraft Heinz's rejected bid was likely to spark a 'protracted negotiation process'.

'Kraft Heinz's approach demonstrates the pressure on brand owners to consolidate in the face of international pressure on margins and constraints to organic growth opportunities,' he said.

'With about 70% of revenue from Europe and Asia, Unilever's markets are complementary to Kraft Heinz, which has around 70% in the US.'

US investment legend Warren Buffett owns just over a quarter of Kraft Heinz, while just under a quarter is held by fund group 3G Capital Management.

News of the Unilever bid sparked a broader rally in the shares of consumer staples stocks, with Reckitt Benckiser (RB) rising 3% to £71.05 and Associated British Foods (ABF) 1.4% higher at £26.03.

Among the fallers, Rolls-Royce (RR) was down 4.1% as credit ratings agency Fitch downgraded its debt, while miners tracked the copper price lower.

Anglo American (AAL) fell 2.2% to £13.40, BHP Billiton (BLT) was down 1.6% at £13.92, Glencore (GLEN) dropped 1.5% to 319.6p and Rio Tinto (RIO) traded 1.3% lower at £35.98.

On the FTSE 250, Essentra (ESNT) was a strong riser, up 14.8% at 483.7p despite a profit warning from the plastics and packaging company, as investors judged the news less bad than feared.

PZ Cussons (PZC) jumped 2.8% as the personal healthcare product maker was buoyed by new of the Unilever bid.

The Finsbury Growth & Income (FGT) investment trust also rose, up 1.5% at 675p, thanks to manager Nick Train's 9.7% stake in Unilever.

Among 'small cap' stocks, Georgia Healthcare (GHGG) jumped 8.1% to 385p, after reporting a doubling of profits.

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Comments  (16)

  • Micawber: 

    It's not doing Finsbury's sp any harm either....

    13:48 on 17 February 2017

  • Law Man: 

    It may give me a quick windfall, but this 'merger' would be dangerous.

    The U.K. must be (one of) the worst states in the world for allowing important businesses to be taken over by foreign corporations.

    As we saw when Kraft took over (overtook?) Cadbury, with breach of promises, it results in destruction of jobs, damages the UK economy, and reduces choice for consumers (have you eaten a Cadbury's chocolate bar recently?).

    It does not say the form of the 'merger', and so whether there will be a cash offer. I assume even if the consideration is Kraft shares, you could then sell them at a profit. If shareholders approve the terms, I hope HMG blocks it.

    18:32 on 17 February 2017

  • Confused of Cove: 

    I agree with you Law Man, Kraft Heinz is a sinister predator (yes, Cadbury was a prime example) and Unilever must not be sold!

    18:41 on 17 February 2017

  • Peter in Cornwall: 

    Law Man is quite correct. This is probably the first of a number of the post brexit opportunistic takeover deals powered by the lower value of the pound. The question is when will the pound recover sufficiently given several years (if ever) of negotiations with EU funded bureaucrats who have no incentive to conclude negotiations other than their large salaries, whopping expenses and big fat pensions.?

    Can anyone imagine a French government allowing a deal like this to slip bye?

    20:34 on 17 February 2017

  • albion: 

    Hopefully the Government will take into account the treatment of Cadbury after it was taken over and block this move. In addition American consumer food products are cr*p, look how Kraft has since destroyed the Cadbury brand.

    02:38 on 18 February 2017

  • Cynical Investor2: 

    Echo everything posted. It would be an appalling deal for UK Plc. Next will be Rolls with the stock open to a predator.

    09:33 on 18 February 2017

  • alex u: 

    Everything is for sale in the UK as short-termism rules. This country will

    not be able to compete as there are no mega corporations as found in the US.

    Goodbye to the jobs.

    Same with Vauxhall, all jobs will go as the French rightly look after their own.

    Look at Switzerland, it has two of the largest companies in the world- Nestle

    and Novartis. We have two failures- GSK and AZN. They are probably next.

    09:45 on 18 February 2017

  • Cynical Investor2: 

    The Cadbury experience should encourage HMG to give greater attention to this potential " merger". It may benefit Investors short-term but the Kraft business model will not benefit the worker or consumer.

    Where will these monolithic monopoly's end. It seems for all it PR, Kraft will not sell Cadbury products in the US.

    09:56 on 18 February 2017

  • Law Man: 

    To date, all comments are AGAINST this take over.

    A practical problem is that we, as individual shareholders, are (almost all) unable to vote on the proposal. We hold shares in Unilever direct and through collective funds/ trusts; but through nominee accounts.

    At present there is no mechanism for us to instruct our nominee to vote against. Given the Internet, this should be possible and cheap.

    In the meantime, we can write to Unilever: state I am a shareholder via nominee a/c; that we support the board's rejection, and that we request the board to oppose the takeover in all circumstances. See https://www.unilever.com/contact/contact-form/

    11:12 on 18 February 2017

  • stephen hill: 

    with regard to Cadbury and Kraft, why has no one stepped up to the plate with an old style chocolate bar? if that is an important point?

    11:12 on 18 February 2017

  • Oldtime Investor: 

    Bum deal. Uni is yielding a healthy and for ever 4% or so, even at this price. What can I usefully do with a few £10Ks of cash in today's market? Might get 1.1% in a long-term ISA if lucky. Or buy into some other high yielder at the top of the market buoyed by - a low £ . Get real. Goodbye Kraft.

    11:15 on 18 February 2017

  • ascend: 

    There is a saying, The Opposition is always looking for a Dumb

    01:23 on 19 February 2017

  • ascend: 

    When you look at the French and the Swiss- they have one thing in common - they look after their people and look after their companies

    01:26 on 19 February 2017

  • ascend: 

    now you got tony blair saying to the brexit remainers to rise up and revolt - looks like he wants civil war in the uk

    01:28 on 19 February 2017

  • ascend: 

    now how will that help our people or our companies - now how much will he take from the EU pay him to strangle us

    01:31 on 19 February 2017

  • Andrew Hill: 

    It's a great pity that some of our politicians didn't stand up more for our companies as jobs were exported. It make me weep to see how the skills of this country have been discarded at the altar of short termism.

    14:37 on 19 February 2017

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