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Various Kraft Foods Inc. snack and grocery products are arranged for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, Jan. 17, 2012. (Daniel Acker/Bloomberg)
Various Kraft Foods Inc. snack and grocery products are arranged for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, Jan. 17, 2012. (Daniel Acker/Bloomberg)

Unilever rejects $143-billion Kraft Heinz offer as too low Add to ...

U.S. food company Kraft Heinz Co. made a surprise $143-billion (U.S.) offer for Unilever PLC in a bid to build a global consumer-goods giant, although it was flatly rejected on Friday by the maker of Lipton tea and Dove soap.

A combination would be the third-biggest takeover in history and the largest acquisition of a Britain-based company, according to Thomson Reuters data, triggering British fears over jobs.

It would bring together some of the world’s best known brands, from toothpaste to ice creams, and combine Kraft’s strength in the United States with Unilever’s in Europe and Asia.

The global packaged-food industry is grappling with slowing growth, new competition from upstart brands, deflation in developed markets and more health-conscious consumers.

Although Kraft, which is controlled by U.S. billionaire Warren Buffett and private-equity firm 3G Capital, said it looked forward to talking terms, Unilever said it saw no reason to discuss a deal without financial or strategic merit.

Kraft has until March 17 to make a final bid for Unilever under British takeover rules.

Unilever shares rose to a record following news of the offer, which analysts at Jefferies called a “seismic shock,” and closed 15 per cent higher, short of Kraft’s $50-a-share offer price, with the news lifting shares across the sector.

Unilever said Kraft’s proposal included $30.23 a share in cash, payable in U.S. dollars, and 0.222 of a share in a new enlarged entity for each Unilever share and represented an 18-per-cent premium to its share price on Thursday.

“We believe Kraft will likely need to raise its offer substantially if it hopes to change the outcome,” RBC Capital Markets analyst David Palmer said in a research note.

Kraft’s move could flush out other bidders for Unilever, but of the potential rivals, U.S consumer giant Procter & Gamble Co. may face antitrust hurdles, while pharmaceutical and consumer-packaged goods company Johnson & Johnson would likely not be interested in household products.

Unilever has a larger presence than some peers in emerging markets, which were once the big driver of industry growth, but which have slowed in recent years.

It is also feeling the after-effects of Britain’s decision to leave the European Union, with a fall in the pound currency raising the cost of producing consumer goods in Britain and straining relations between the country’s retailers and suppliers.

“Unilever has struggled to achieve top-line revenue growth for years and has achieved profit growth through improving the product mix and cutting costs. A tie-up with Kraft Heinz would enable it to continue to improve profits in the same way,” Jonathan Bell, chief investment officer at Stanhope Capital, said in an e-mail.

3G READY TO DEAL

Although Kraft is smaller than Unilever, with a market value of $106-billion as of Thursday, it is 50.9-per-cent owned by Mr. Buffett’s Berkshire Hathaway and 3G Capital, which also controls Anheuser-Busch InBev SA.

3G, known for driving profits through aggressive cost cutting, has orchestrated a string of big deals rocking the food and drink industry, including AB InBev’s takeover of SABMiller and the combination of Kraft and Heinz.

A deal would offer opportunities to combine marketing, manufacturing and distribution in addition to cutting costs, but some industry analysts said Kraft might not want Unilever’s household and personal-goods brands and could spin them off.

“This is cheap money meeting industrial logic,” said Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns Unilever shares.

“Kraft Heinz are attempting a massive push on the fast-forward button … to acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades,” Mr. Clayton added.

Britain’s largest union, Unite, expressed immediate concern about potential job losses if Unilever fell under Kraft’s control. Unite urged Unilever to continue fending off the takeover attempt.

A recent wave of cross-border deals in Europe is leaving British businesses vulnerable to possible job cuts. Groupe PSA’s proposed acquisition of General Motors’ Opel business may eventually lead to heavy restructuring at the Vauxhall brands, which employ 4,500 people in Britain, sources said.

Centerview and Morgan Stanley are working with Unilever alongside UBS and Deutsche Bank, which are also acting as corporate brokers. Kraft is working with Lazard.

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