Kraft in swift reversal on Unilever bid, hitting shares

By Kate Holton and Pamela Barbaglia

LONDON (Reuters) - Kraft Heinz Co's rapid retreat from its surprise $143 billion bid for Unilever in the face of stiff resistance from the company and politicians sent shares in the Anglo-Dutch group 8 percent lower on Monday.

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.

However, the U.S. food group had not factored in the resistance it received from Unilever Chief Executive Paul Polman, who dismissed its offer as having no financial or strategic merit, and requiring no further discussion.

Britain's response was also a concern after Prime Minister Theresa May signalled she would take a more proactive approach to foreign takeovers, sources familiar with the matter 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.

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.

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 in a statement on Sunday it had "amicably agreed" to withdraw its proposal.

The company's Dutch listed shares were down 7 percent and analysts at Macquarie said Unilever's stock should not give up all its gains following the approach.

"Unilever's share price is still performing remarkably well as I suppose the argument that these stocks were cheap versus borrow costs is still valid," a shareholder with one of the biggest 20 holdings in Unilever stock told Reuters.

"A takeover at a later stage seems unlikely to me as Unilever will build their defences and sharpen their focus on profitability," the shareholder added.

CULTURE CLASH

A combination of the two firms would have been the largest acquisition of a UK-based company, Thomson Reuters data showed and would have brought together some of the world's best known brands, from toothpaste to ice creams.

While it would also have combined Kraft's strength in the United States with Unilever's in Europe and Asia, it would also have faced a potentially huge cultural clash.

In 2013, 3G, which made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs, teamed up with billionaire investor Buffett to acquire Heinz and then bought Kraft two years later.

It is now the second-largest shareholder in Kraft, behind Buffett's Berkshire Hathaway.

Unilever feared that a merger with Kraft risked eroding the value of its brands and could impede its expansion in emerging markets, which requires more investment, people familiar with the company's thinking said.

"It was always going to be a difficult pitch to convince shareholders to relinquish their grip on Unilever, given the expectations for the company to keep churning out resilient growth in the years to come," George Salmon, Equity Analyst at Hargreaves Lansdown, said.

Kraft's decision to pull the deal also removes a political headache for Prime Minister May who has been adamant that Britain should vet foreign takeovers.

During her leadership campaign last year, May criticised Kraft's 2010 takeover of British chocolate maker Cadbury, following which it reneged on an earlier promise to keep a factory in southwest England open.

(Additional reporting by Anthony Deutsch in Amsterdam and Simon Jessop in London; Editing by Guy Faulconbridge and Alexander Smith)