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A blog by Leon Oudejans

Kraft Heinz Unilever

20 February 2017


On 17 February 2017, the US based Kraft Heinz group announced a hostile merger bid on Unilever, an Anglo-Dutch conglomerate. The term merger is misleading as 2016 revenue of Kraft Heinz is half of Unilever. The Trump Administration is unlikely to object given its focus on deregulation.

The combination Kraft Heinz Unilever could – and thus would – be dominant towards retail groups (eg, Ahold). It’s likely that this market dominance will translate in unilateral price increases. Hence, we will probably see more empty supermarket shelves evidencing pending price negotiations.

EU competition regulations may become a serious problem though. It’s likely that an EU approval may be subject to the sale of individual Unilever companies. Considering the owners of Kraft Heinz (eg, 3G Capital, Warren Buffett‘s Berkshire Hathaway), this might be the true intention behind the hostile “merger” bid.

Unlike ABN AMRO‘s 2009 hostile take-over, there are no vital or strategic interests to prevent this Unilever “merger”. The draft law of the Dutch Ministry of Economic Affairs to protect vital Dutch interests relates to telecom. Consequently, the Unilever conglomerate is likely to be torn apart in order to comply with EU preconditions and to achieve a swift return on investment.

Kraft and Heinz only merged in 2015. Adding a conglomerate like Unilever in 2017 would be too much for most companies. Post-acquisition stress is usually high as top managers still fight for their positions in the new combination. Post-acquisition integration is usually overrated.

A string of acquisitions may easily mask serious internal issues, like operational losses. Acquisition (or goodwill) accounting may allow losses to be capitalized. I doubt this is the case here. Kraft Heinz is different as 3G Capital partners took over the Chairman and CEO roles. Kraft Heinz is a public company (Nasdaq: KHC) that is run like a private company.

Combining a “worldwide food company” (ie, Kraft Heinz) with a “multinational consumer goods company” selling “food, beverages, cleaning agents and personal care products” (ie, Unilever) is likely to create lots of attention from companies like BeiersdorfColgate-Palmolive, Kimberly-Clark, L’Oréal, and Reckitt Benckiser. Divestment of Unilever companies should be easy.

Unilever, headquartered in Rotterdam (NL) and London (UK), has an inefficient ownership structure. Wiki: “Unilever N.V. has a primary listing on Euronext Amsterdam []. Unilever plc has a primary listing on the London Stock Exchange []”. It’s likely that Unilever is significantly undervalued due to its wide product range (ie, lack of synergy) and its inefficient ownership structure.

Unilever’s press release, rejecting the Kraft Heinz offer, confirms the above: “Their proposal represents a premium of 18% to Unilever’s share price as at the close of business on
16 February 2017. This fundamentally undervalues Unilever. Unilever rejected the proposal as it
sees no merit, either financial or strategic, for Unilever’s shareholders.”

The Oracle of Omaha has spoken again. Investopedia: His investments are long-term positions, accomplished by the purchase of strong companies that are trading well below their intrinsic value. Sunday’s withdrawal of the hostile “merger” will probably result in a hostile take-over.

If you don’t know me by now (1972) by Simply Red – artists, lyrics, video, Wiki-1, Wiki-2

If you don’t know me by now

You will never never never know me


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