Kraft Heinz Targeting Takeover of Unilever

If Kraft Heinz has its way, it’s about to get a whole lot bigger. This morning they announced that a bid was made by the company to acquire Unilever, a large global provider of food and personal products. Among Unilever’s large number of brands is Axe body spray, Dove soap, Hellman’s mayonnaise, Lipton and PG Tips tea, Ben and Jerry’s ice cream, and Klondike bars. Kraft Heinz’s current portfolio of brands includes A1 steak sauce, Cool Whip, Country Time Lemonade, Maxwell House coffee, Miracle Whip salad dressing, and Velveeta cheese in addition the company’s Kraft and Heinz namesake brands.

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Today’s Kraft Heinz has its origins in the 2011 decision to split the former Kraft into two companies: one called Kraft for the slower growing grocery products and one called Mondelez for higher growth products such as Cadbury chocolate.

Meanwhile, during 2013 the Pittsburgh based ketchup and food company Heinz agreed to be acquired by Brazilian private equity firm 3G Capital. Two years later, 3G purchased Kraft and merged it with Heinz. Today, Kraft Heinz is doing about $27 billion annually in sales and has operating income of nearly $4 billion. That compares to about $58 billion and $8 billion for Unilever. The $50 per share offer for Unilever that Kraft Heinz made would have valued the company at about $55 billion. Even though the offer was rejected shares of Unilever shares surged today by about 14% to $48.58 per share on hopes of a negotiation between the two companies. About two-thirds of the $55 billion proposed purchase was to be in cash, with the balance paid in shares of Kraft Heinz. Presumably, Berkshire Hathaway would be involved in financing the cash portion of the transaction as they have been in numerous past 3G deals and is already a very large shareholder in Kraft Heinz.

3G Capital has emerged as one of the most dominant private equity funds in the world. Their success has largely been attributable to an intense focus on cost cutting of the companies they acquire. However, unlike many private equity groups 3G rarely, if ever, sells the assets they acquire. The firm has also been the driving force behind the creation of Anheuser-Busch Inbev, the largest brewer in the world, as well as Tim Hortons’ acquisition of Burger King.

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