An offer of 143 billion dollars (134 billion euros), it is refused … sometimes! The sum was put on the table, on February 17, 2017, by the American Kraft Heinz, world number five in food, for the purchase of game bigger than him: the Dutch Unilever, world number three behind Nestlé and PepsiCo. Present in the food industry, but also in cosmetics and cleaning products, Unilever is valued around 138 billion euros on the stock market, against 100 billion for Kraft Heinz.
Tempting, the proposal represented a premium of 18% on the group’s share price on Thursday, February 16, at the close. It was above all a thunderclap in the sector since such an operation would have been the third largest merger-acquisition in history, with a cumulative turnover reaching 77.6 billion euros, giving birth to the number two global food companies, behind the Swiss giant Nestlé. Unilever, which markets Knorr soups, Ben & Jerry’s ice cream, Dove soaps and Rexona deodorants throughout the world, has sales of 52.7 billion euros and employs some 173,000 people. For its part, Heinz Kraft, resulting from the merger in 2015 of the Heinz groups, famous for its ketchup, and Kraft Foods (coffee Maxwell, Philadelphia cheeses, etc.), has annual sales of 26.5 billion dollars (24.9 billion euros).
The sponsor of mergers
We find Jorge Paulo Lemann behind four of the five biggest mergers and acquisitions in the history of consumer goods. Since 2004, the former tennis player turned businessman has multiplied juicy operations. Via the 3G Capital fund, which he developed with his partners, Jorge Paulo Lemann notably worked on mergers with Anheuser-Busch in 2008, then with SAB Miller in 2015.
No arm wrestling
Such a rapprochement would have enabled Heinz Kraft to revive the machine to sell. “ Unilever would bring it diversification outside of food into better oriented sectors and would balance the mix with geographical complementarity, observes Frédéric Fessart, partner of OC & C Strategy Consultants. Above all, with efficiency at the level of central functions, factories, scale effects, from the purchase of raw materials to marketing expenses, and of course a strengthening of the levers of negotiation vis-à-vis mass distribution. ” But for Unilever, it will be “no”. He made it known in a press release explaining that the proposal “fundamentally” undervalues him, seeing in this union “no advantage, whether financial or strategic, for the shareholders ofUnilever “, And that there was” no basis for further discussions “. If Kraft Heinz still seemed ready, the following Saturday, to raise its offer, the expected showdown will not take place.
The latest major acquisitions in the global FMCG sector
With its $ 143 billion (at least), the reconciliation between Kraft Heinz and Unilever would have been by far the largest operation in the history of the sector – and the third, all sectors combined.
Source : 0C & C Strategy Consultants
The weight of Brexit
For everyone to be convinced, the two companies announced in a joint press release on Sunday, February 19, the friendly withdrawal of the Kraft offer. Heinz, scalded by the hostility of a British government, declaring itself behind the scenes ready to intervene. “There is a nervousness of the English government in period of Brexit, which sends a message to the British subjects: we will not let go of the the flagships of our industry abroad. Buffett sensed it and retreated. Especially since Kraft did not leave a good memory to the English. After the purchase of Cadbury, he went back on his word by closing the Somerdale plant, near Bristol, ”underlines Frédéric Fessart. Because such operations are not without consequences on employment. Since 2015, Kraft Heinz initiated a major restructuring by cutting 5,000 jobs (out of 46,000) and seven factories. In the 2015 AB InBev / SAB Miller merger, 5,500 jobs will be cut over three years.
The Top 5 of the food industry in 2015
Turnover in billions of dollars
Nestlé leads the food industry in sales, with Unilever in fourth position.
Source : 0C & C Strategy Consultants
Difficult to predict the future. The cheap money and the mixed performance ofUnilever explain the timing. While in 2016 it posted net profit up 5.5%, Unilever predicts a “slow” start to 2017, due to “difficult market conditions”.
« Unilever is going through a period of fragility, believes Yves Marin, senior manager at Kurt Salmon. It is on a backward multi-business model and, like Danone and Nestlé, is suffering from the recovery in the capital goods markets, which mobilize part of the purchasing power of consumers, to the detriment of food. ” Unilever is not the only one suffering, however. Other companies, such as Mondelez, Colgate or even Procter & Gamble, with pale growth, can no longer satisfy their shareholders.
So many targets for the Helvetian-Brazilian Jorge Paulo Lemann, head of the activist fund 3G, and the American Warren Buffett, boss of the Berkshire Hathaway holding, both shareholders of Kraft Heinz (up to 50.9% of the capital), to maneuver in this operation.
Reasons for failure
- An offer deemed insufficient by Unilever.
- Differences between companies.
- The open hostility of the British government.
One shot rifle
They are already at the origin of the group, since the two men joined forces in 2013 to take control of Heinz and then, two years later, to arrange a marriage with Kraft Foods. “They feel that the food industry is coming to the end of the race in North America,” continues Frédéric Fessart. They are on a model of consolidation and pressure on costs, and will knock on the doors of other actors in a situation of stagnation, whose shareholders could be seduced by the model. »An efficient model in its ability to increase profitability. In 2016, their organic growth was almost zero, with cost inflation. But the EBITDA grew by 19%.
“It’s a single shot rifle,” warns Frédéric Fessart. Hence the urgency to find another acquisition in their logic size matters (size matters). For Yves Marin, the concentration of food is not at the end of its logic. “There is a resumption of major maneuvers and movements of funds, with a lot of liquidity available in the market and low interest rates. »With also a search for rebalancing for players who, in an industry in slow motion, take the opportunity to race, strengthen in promising sectors and diversify geographically, like L’Oréal or Danone in the United States .
“There is a resumption of major maneuvers and movements of funds, with a lot of liquidity available in the market and low interest rates. “
Yves Marin, senior manager at Kurt Salmon