Burgess COMMENTARY
I was disgusted when I heard that Warren Buffet (Berkshare Hathaway) in collaboration with Jorge Lemann (3G venture capital firm in Brazil) who are two of the largest shareholders in Kraft Heinz were initiative a process to take over Unilever. Thank goodness they have chosen to withdraw in a friendly way because otherwise there would have been a messy battle with no winners ... and indeed Warren Buffet's reputation in tatters.

Unilever under the very able leadership of Paul Pollman has changed the trajectory of the company so that it supplies essential products for people in a responsible way, and makes profit in the process. This is not something that gets accomplished in a few months, but takes a few years, and in the process Unilever has attracted a lot of investors who are invested for years rather than months, days or just hours. This is responsible corporate stewardship and it is responsible investing.

It would be good to have more M&A stories that turn out this way (Note: This is being written based on information as of February 20, 2017 ... hopefully there will not be subsequent changes to the core situation as of now that will change things!).
Peter Burgess

Unilever ... How Unilever foiled Kraft Heinz's £115bn takeover bid ... Fierce resistance and ‘no appetite for any offer’ warning forced key investors Warren Buffett and Jorge Lemann into retreat, insiders say


Unilever’s Burton-upon-Trent factory in the UK where Marmite is produced. Photograph: Christopher Thomond for the Guardian

Unilever forced Kraft Heinz to abandon its £115bn bid for the company after the Anglo-Dutch maker of Marmite and Flora said it would use every tool at its disposal to fend off a deal.

The US consumer goods firm behind Philadelphia and WeightWatchers withdrew its offer “amicably” on Sunday evening, just 48 hours after admitting interest in its much larger rival.

The rapid volte face saw Unilever’s shares fall by nearly 8% on Monday – their worst one-day performance since 2008 – after soaring by 13% on Friday to a record high when the firm revealed it had knocked back an initial approach.

Well-placed sources said Kraft Heinz’s key investors – investment guru Warren Buffett and private equity tycoon Jorge Lemann – were forced into a chastening retreat after Unilever made clear the company stood no chance of sealing the second-largest corporate deal in history.

Unilever, led by Dutch chief executive Paul Polman, is understood to have warned the duo over the weekend that there was no appetite for the offer at boardroom level and that investors were highly unlikely to be swayed.

One well-placed source said Unilever had gone “on the offensive”, catching Kraft Heinz unawares and forcing the company to “wave the white flag”.

“It became clear [to Kraft Heinz] that there was very little chance the deal would ever happen,” the source said.

Kraft Heinz’s position was further weakened by the fact that rumours of the deal leaked before the US company was ready. This meant Kraft did not have the time to woo key investors before going public with its interest.

Unilever shareholders, 70% of whom are long-term investors who have held their shares for more than seven years, are also thought to have been sceptical about the benefits of the proposal.

Kraft’s offer was made partly in shares but mostly in cash, about £70bn, a sum that would have been funded by debt. This heavily-leveraged business model would have dragged down Unilever’s credit rating, leaving the combined company laden with a huge debt pile incurring substantial repayment costs.

“Shareholders were effectively being offered a deal funded by their own money,” said one source familiar with the situation.

Such a swift withdrawal is unheard of for Lemann and Buffett, neither of whom are accustomed to tasting defeat in a major bid battle. Lemann’s Brazilian buyout house 3G was instrumental in securing brewer ABInBev’s takeover of SABMiller, while Buffett – often dubbed the Sage of Omaha for his deal-making prowess – was among the masterminds behind Kraft’s merger with Heinz in 2015.

While business minister Greg Clark spoke to Unilever and Kraft on Friday, government sources played down reports that Kraft was put off by the threat of intervention from government.

But Kraft Heinz will have been aware of Theresa May’s scepticism over foreign takeovers, including the controversial takeover of Cadbury by Kraft in 2010 when it reneged on commitments to save jobs. That deal prompted a change in the takeover code that provided for commitments made during the acquisition process to be made legally binding.

That would have left Kraft, whose backers are famed for tough cost-cutting, facing pressure to safeguard the combined firm’s 9,000 UK jobs, including Unilever’s London office and several production facilities.

Earlier this year Japan’s Softbank became the first overseas buyer to be affected by the new provisions, as part of its £24bn takeover of chip designer ARM Holdings. The Japanese firm promised to keep ARM’s headquarters in the UK and double its UK headcount over the course of five years.

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Kraft Heinz withdraws Unilever takeover bid US food giant pulls out of merger talks in a surprise turn of events with both companies jointly announcing ‘no deal’


A Marmite-branded taxi ... A branded taxi stands outside Unilever’s Marmite factory in Burton upon Trent, UK. Photograph: Darren Staples/Reuters

Gwyn Topham ... Sunday 19 February 2017 13.50 EST First published on Sunday 19 February 2017 12.28 EST

The proposed £115bn takeover of Unilever by Kraft Heinz has been called off, just two days after the offer was announced.

The takeover of the Anglo-Dutch consumer goods giant would have been one of the largest deals in corporate history but was resisted at Unilever and had provoked political unease over British jobs. Unilever rejected the offer by the American firm on Friday, describing the approach as having “no merit, strategic or financial”.

Kraft Heinz was expected to return with a higher offer, but late on Sunday the two firms issued a surprise joint statement announcing no deal would go ahead. It said: “Unilever and Kraft Heinz hereby announce that Kraft Heinz has amicably agreed to withdraw its proposal for a combination of the two companies.

“Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

The US food giant had been preparing to meet top tier shareholders, which include BlackRock, Leverhulme Trust and Legal & General, to convince them to accept the deal.

But the strength of resistance to the proposal saw Kraft decide over the weekend to back away. As well as Unilever’s clear reluctance, unions had raised fears over jobs, and discussions had started with the business secretary, Greg Clark, over a move that appeared to have strong echoes of the takeover of Cadbury’s by Kraft in 2010, a deal singled out for criticism by Theresa May last year.

A spokesperson for Kraft Heinz said: “[Our] interest was made public at an extremely early stage. 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. We remain focused on driving long-term value while always putting our consumers first.”

Unions had voiced fears over the 9,000 jobs in Britain that could be affected under a takeover of Unilever by Kraft Heinz, where billionaire investor Warren Buffet owns more than a quarter of the shares and which is also backed by 3G, a Brazilian private equity firm.

Unite, Britain’s biggest union which directly represents about 2,000 of the 7,500 Unilever staff in the UK, welcomed the news. A Unite spokesman said that while the union was pleased that Kraft Heinz had signalled their withdrawal, the bid illustrated a need to reform takeover rules: “It shows the need for a ‘Cadbury rule’ which takes into account the issues like jobs and consumers in these circumstances, so it’s not just down to how deep someone’s pockets are, to throw money at shareholders.”

The Cadbury rule is a reference to the controversial £11.5bn takeover of chocolate maker Cadbury by Kraft in 2010. Pledges to save factories were reneged on almost immediately, before the firm was spun off to form a separate firm, Mondelez, while customers believed the quality of products such as its Creme Egg were downgraded.

A source close to the bid earlier insisted there was “no comparison” between the Kraft Heinz company and its management team and the Kraft that took over Cadbury – but admitted that there would be stringent cost-cutting and “synergies” including job losses should Unilever be taken over.

Downing Street did not confirm reports that the prime minister had ordered top officials to examine the planned takeover of Unilever to see if it could merit government intervention. A spokesperson for the Department of Business, Energy and Industrial Strategy (BEIS), had said it was continuing to monitor the situation closely.

The bid of £115bn would have made it the second largest takeover in corporate history, beaten only by Vodafone’s $203bn (£163bn) takeover of Mannesmann in 2000. A combined Kraft-Unilever would have been valued at more than £200bn and control 3% of the global packaged food market, according to Euromonitor.

The share price in both firms may be expected to slide back on Monday, after surging on news of the offer on Friday. Buffett’s fortune was briefly boosted by another $5.7bn purely on his personal stake in Kraft Heinz, whose shares rose 10%, while Unilever shares rose 13.4% to a record high.

The takeover bid was fiercely resisted by the board, led by Paul Polman, the chief executive of Unilever, although he would have stood to earn almost £12m in shares under a sale. The Dutch CEO has made a name as an unusual advocate for sustainable business and global concerns such as poverty and climate change.

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The Unilever-Kraft Heinz takeover: the three key players ... One of the biggest takeovers in corporate history hinges on fabled investor Warren Buffet, 3G founder Jorge Lemann and the Unilever CEO, Paul Polman

Rob Davies @ByRobDavies Friday 17 February 2017 12.30 EST Last modified on Friday 17 February 2017 18.10 EST

Warren Buffett
Jorge Lemann, the world’s 19th richest man. Photograph: Scott Olson/Getty Images

Jorge Lemann

A co-founder of private equity giant 3G Capital, Jorge Paulo Lemann is ranked the world’s 19th richest man and Brazil’s wealthiest, with a fortune estimated at $29.5bn.

He was born in 1939 and as a young man was the Brazilian national tennis champion and played at Wimbledon. He went on to work for Credit Suisse in Geneva and later founded the Brazilian investment bank Banco Garantia. Two co-founders later became fellow founding partners at 3G Capital.

Lemann’s fortune was built on beer: he invested in two Brazilian breweries that became part of Stella Artois brewer InBev and which then took over Anheuser Busch, owner of the Budweiser brand. As well as big stakes in ABInBev and Kraft-Heinz, Lemann’s 3G also owns Burger King.

The 77-year-old has been married twice, has six children, and lives in Switzerland.

Paul Polman
Paul Polman, CEO of Unilever. Photograph: Mark Lennihan/AP

Paul Polman

Unilever’s Dutch chief executive grew up in Enschede, where he had high hopes of becoming a doctor. However, places at medical school were allocated by lottery at the time and Polman missed out, according to an interview.

The 60-year-old’s career has taken him through some of the most high-profile consumer goods companies, starting with Procter & Gamble in 1979. He joined Nestlé in 2006 and was poached three years later by Unilever to become its chief executive.

Polman is an unusual boss, who spends substantial amounts of time travelling and lecturing on issues such as global poverty, climate change and refugees. He recently described his job at Unilever: “I always say I represent one of the biggest NGOs.”

At the behest of UN secretary-general Ban Ki-moon, he agreed to be one of 27 members of the UN high-level panel of eminent persons on the post-2015 development agenda.

The Dutchman has previously declared himself “ashamed” of the amount of money he earns – £8m last year – and attracted criticism for bemoaning his high pay after Unilever said it would be raising prices to offset the post-EU referendum fall in the pound.

A photo he posted on Twitter during an anti-Brexit march suggests he opposes the UK’s exit from the European Union. He is married with three children.

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