Kraft Heinz Abandons Unilever Bid

Morningstar analysts had speculated that Kraft Heinz would need to up the ante, but ultimately the deal was retracted due to a corporate culture clash

Erin Lash, CFA 21 February, 2017 | 2:56PM
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A few short days after its interest in Unilever (ULVR) was made public, Kraft Heinz (KHC) has abandoned its bid. On February 17 the firm had offered $50 per share for Unilever, or $156 billion on an enterprise basis, equating to around 17-18 times trailing earnings before tax.

Morningstar analysts had speculated that Kraft Heinz would need to up the ante above the 18% premium to Unilever’s stock price prior to the announcement. But it has also been reported concerns over culture, particularly surrounding 3G’s stringent cost-cutting and whether that stood to impair the inherent brand equity across its packaged-food and household and personal-care operations, led to the decision. Overall, this news fails to alter our fair value estimates of $69 for Kraft Heinz shares and £36 for Unilever shares, which remain in place.

Kraft Restricted from Making Second Offer

In accordance with the U.K. takeover code, Kraft Heinz is restricted from making another approach toward the European consumer products firm for the next six months. However, while this takeover has been thwarted, we doubt its interest in consolidating the space has subsided. It is far from clear where its intentions lie, but Kraft Heinz could opt for a partner with large exposure to faster-growing emerging markets – where it lacks, representing a mere 10% of total sales. It will also look to reduce costs, as the Unilever merger offered both.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
The Kraft Heinz Co36.98 USD-0.75Rating
Unilever PLC3,853.50 GBX-0.68Rating

About Author

Erin Lash, CFA  Erin Lash, CFA, is a senior stock analyst with Morningstar.