Unilever plunges as early opposition kills Kraft Heinz bid

Kraft Heinz’s $143 billion bid for Unilever collapsed just two days after it became public knowledge, with the adamance of the Anglo-Dutch target’s rejection said to play into billionaire Warren Buffett’s longtime aversion to hostile deals.

Unilever shares fell as much as 7.9 per cent in early trading in London on Monday, reversing some of their gain Friday after the US maker of ketchup and baked beans disclosed its approach.

The decision not to pursue what could have been the largest-ever takeover in the food and beverage industry came after 3G Capital and Buffett’s Berkshire Hathaway, which together own about half of Kraft Heinz, decided that Unilever’s negative response made a friendly transaction impossible, leaving no choice but to walk away, people with knowledge of the situation said.

Both also believed that a protracted war of words wasn’t in the best interest of Kraft and would risk souring future deal opportunities, the people said, asking not to be named because the process was private.

While there were minor concerns about opposition from the UK government, according to one of the people, the companies were optimistic that they could win the backing of Westminster with a friendly deal. Prime Minister Theresa May had asked officials to study the proposed takeover in the wake of the country’s vote to exit the European Union.

“Kraft Heinz’s interest was made public at an extremely early stage,” spokesman Michael Mullen said on Sunday in an e-mailed statement. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”

Representatives for Omaha, Nebraska-based Berkshire Hathaway and 3G, based in New York and Sao Paulo, didn’t respond to messages seeking comment Sunday.

Unilever, in rejecting the $50-a-share offer, said the proposal “fundamentally undervalues” the household-products maker. Its management fretted behind the scenes about the cost-cutting model at Kraft, which sells products like Velveeta and Jell-O, and its lack of vision for cultivating brands, people familiar with the situation said.

Shares of Unilever jumped 13 per cent Friday in Amsterdam, closing at a record high. Kraft Heinz, based in Pittsburgh and Chicago, climbed 11 per cent to a record in New York trading.

“We expect the seismic shock to reverberate for a while yet: not least in terms of what it means for value perceptions of Unilever and whether Kraft Heinz might yet offer a welcome home for some or all of Unilever’s foods assets,” Martin Deboo, an analyst at Jefferies, said in a note.