U.S. food company Kraft Heinz Co withdrew its proposal for a $143-billion merger with larger rival Unilever Plc, the companies said on Sunday, raising questions about Kraft’s next steps and whether it could turn its focus to another target.Kraft had made a surprise offer for Unilever in a bid to build a global consumer goods behemoth that was flatly rejected on Friday by Unilever, the maker of Lipton tea and Dove soap.Kraft withdrew its offer because it felt it was too difficult to negotiate a deal following the public disclosure of its bid so early following its approach to Unilever, according to people familiar with the matter who requested anonymity to discuss confidential deliberations.
Some key concerns raised during talks included potential UK government scrutiny as well as differences between the companies’ cultures and business models, one of the people said.Kraft was forced to publicly disclose its offer to Unilever on Friday to comply with Britain’s takeover regulations, after rumors of its approach to Unilever circulated among stock traders.Under U.K. takeover rules, Kraft’s public withdrawal of its offer precludes it from reviving takeover talks with Unilever for six months.
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The companies did not provide details of the reason for ending the discussion in a statement.A combination would be the third-biggest takeover in history and the largest acquisition of a UK-based company, according to Thomson Reuters data. The combined entity would have $82 billion in sales. A merger would have been put under the microscope by UK regulators.This weekend, Prime Minister Theresa May ordered top officials to investigate the proposed deal to see if it posed any potential threats to the country’s economic interests, the Financial Times reported.May has been adamant that the government should play a more active role in vetting proposed foreign acquisitions of UK companies. She 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.
A deal for Unilever would have marked the next installment of Brazilian private equity firm 3G Capital Management Inc’s longstanding strategy of buying up food companies and slashing costs.In 2013, 3G teamed up with billionaire investor Warren Buffett to acquire Heinz and then purchased Kraft two years later. It is now the second-largest shareholder in Kraft, behind Buffett’s Berkshire Hathaway Inc.
Under 3G, Kraft’s margins have widened to among the highest in the industry. They are around 30 percent, compared to 15 percent at Unilever.The breakdown in deal talks sparked speculation among analysts and investors about whether Kraft might attempt to purchase another large consumer goods company as a backup plan. Its bid for Unilever, where more than 60 percent of sales come from home and personal care products, signals a willingness to make big buys outside of its historic area of focus – food – said Sanford Bernstein analyst Ali Dibadj. He cited Colgate-Palmolive Co as one potential target, noting that its stock popped 4 percent Friday on news that Kraft was eyeing Unilever.