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February 21, 2017

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Kraft exits US$143b bid for Unilever

KRAFT Heinz Co’s rapid retreat from its surprise US$143 billion bid for Unilever in the face of stiff resistance knocked the Anglo-Dutch company’s shares yesterday as investors assessed the impact of the failed approach.

Kraft, which is backed by Warren Buffett and the private equity firm 3G, wanted to buy Unilever as part of its strategy to become a global consumer goods giant by buying competitors and cutting costs and jobs to drive profits.

But the US food group had not factored in Unilever Chief Executive Paul Polman dismissing its offer as having no financial or strategic merit and refusing to come to the table.

The vehemence of this response, along with fears of a political backlash, was enough to put off 86-year old Buffett, whose Berkshire Hathaway has a long-held aversion to making hostile bids, sources said.

“Kraft didn’t realize how hostile their approach would be perceived,” one source said.

A source close to Kraft said its officials alerted Britain’s Business Secretary Greg Clark in a brief call on Friday soon after it made its approach public. Kraft laid out its plan to create a consumer goods behemoth with headquarters in the United States, Britain and the Netherlands and promised to keep Downing Street informed on any developments.

For Kraft, Britain’s response was a major concern after Prime Minister Theresa May signaled she would take a more proactive approach to foreign takeovers, sources said.

May, who had previously singled out Kraft’s 2010 acquisition of another British household name, Cadbury Plc, as an example of a deal that should have been blocked, had indicated her government would want to examine the deal if it went ahead, according to a person familiar with the situation.

However, a spokesman for May said yesterday that the government had not been involved in Kraft’s decision to pull its proposal.

“The issue of the withdrawal from the Unilever deal by Kraft is an issue you should put to Kraft. No. 10 wasn’t involved in it,” the spokesman said.

“The simple fact is that the bid has been withdrawn so I don’t have a view on a bid that doesn’t exist.”

Dutch Prime Minister Mark Rutte, who used to work at Unilever, had also said he would examine what it would mean for the Netherlands in the “positive and the negative” sense.

Buffett and 3G Capital’s Jorge Paulo Lemann, which together own almost 51 percent of Kraft, had hoped Unilever would be more receptive to its overture, given their success backing brewer Anheuser-Busch InBev on its 79-billion-pound (US$99 billion) takeover of London-based SABMiller last year.

Unilever’s London-listed shares, which jumped 13 percent to a record high when the bid was made public on Friday, fell 8 percent to give it a market value of 100 billion pounds after Kraft said it had “amicably agreed” to withdraw its proposal.


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