Kraft to pursue Unilever after $143 bn bid spurned

Kraft Heinz is the fifth-biggest food and beverage company in the world

Kraft Heinz signaled Friday it will press ahead with a campaign to acquire Dutch-British consumer products giant Unilever after an initial bid worth about $143 billion was spurned.

A deal would create a giant in global food, joining the maker of Kraft cheese and Heinz ketchup to its European counterpart, whose products include Q-tips, Hellmann's mayonnaise and Ben & Jerry's ice cream.

Unilever said the offer of an 18 percent premium to Thursday's stock price "fundamentally undervalues" the company and it "does not see the basis for any further discussions."

But Kraft, acknowledging its rejection, said "we look forward to working to reach agreement on the terms of a transaction," although there was no guarantee of a deal.

Shares of both companies surged following the news, suggesting the market believes the mega-deal in the global food industry could happen. In early trading, Kraft Heinz jumped 7.5 percent to $93.81, while Unilever surged 9.5 percent to $46.62.

But analysts said the potentially massive merger could raise red flags for antitrust regulators over the effect on consumers, and for politicians given the potentially large job cuts.

"If the deal does see the daylight, this simply means more job loss for UK and more pain for consumers as competition will erode," said Naeem Aslam, analyst at Think Markets, a market analytics and trading firm.

Kraft's pursuit of Unilever comes as global food companies struggle with anemic economic growth in many key markets. It also would permit the American company to take advantage of a buoyant US dollar at a time when the British pound is under pressure following the Brexit vote.

Kraft Heinz on Thursday reported a year-over-year drop in fourth quarter sales, due in part to 13.3 percent decline in Europe, a region chief executive Bernardo Hess called "weak" on an analyst conference call.

Kraft Heinz is the fifth-biggest food and beverage company in the world and the third-biggest in North America. It was formed by the 2015 merger struck between Heinz's controlling shareholders, US billionaire Warren Buffet's Berkshire Hathaway, and 3G Capital of Brazil.

In its earnings report, Kraft Heinz lifted its cost-savings target following that deal to $1.7 billion through the end of 2017, up from $1.5 billion.

Aslam said Kraft's move comes at a vulnerable moment for Unilever and for British firms more generally.

"Perhaps, predators see a lot of blood and opportunity and falling sterling has produced enough blood on the street for firms around the world to look and cash on opportunities," Aslam said.

"The UK government may try to block the deal and Mr. Trump is all about making in America and inward America. So there could potentially be some sort of battle surfacing on the government level as well which can make the newly established relation between the UK and the US a bit sour."

Euromonitor analyst Raphael Moreau said a deal likely would face tough scrutiny from antitrust regulators, over, for example, the overlap of Heinz and Hellman's in mayonnaise.

Moreau said a smaller transaction was plausible, whereby Unilever could "offload some of its food brands" to Kraft Heinz.