Published: Sat, February 18, 2017
Economy | By Melissa Porter

Food giant Unilever rejects takeover approach from Kraft Heinz

Kraft Heinz said it made an approach to Unilever about combining the companies, a deal that would create a consumer-goods giant with brands spanning Dove soap to Heinz ketchup.

This was met with Unilever saying it is rejecting the offer as it "sees no merit, either financial or strategic, for co. shareholders" and does not see any basis for further discussions with Kraft Heinz.

"We finished 2016 consistent with our expectations and with good momentum heading into 2017", said Kraft Heinz CEO Bernardo Hees, outlining what's to come for the company in the new year.

Kraft Heinz shares were up more than 7% when the USA stock market opened.

The Kraft Heinz Company (NASDAQ:KHC) has earned an average recommendation of "Buy" from the fourteen research firms that are now covering the firm.

Food firm Unilever propped up the FTSE 100 after USA competitor Kraft Heinz made a huge $143bn (£115bn) merger offer for the London-listed firm to inject some energy to trading at the end of the week. Kraft Heinz is owned by 3G Capital, which is a private equity firm headed by Brazil's richest man, Jorge Paulo Lemann.

Kraft Heinz on Thursday reported a year-over-year drop in fourth quarter sales, due in part to 13.3 percent decline in Europe, a region chief executive Bernardo Hess called "weak" on an analyst conference call.

Unilever said the proposal was at an 18 percent premium to Thursday's closing share price.

Kraft is a food company, purely and simply, with a heavy reliance on USA sales, where price increases are hard to pass on and shopping habits and tastes are seemingly changing by the hour. Berenberg analysts said such a valuation would imply multiples of 3 times sales and 21 times earnings, "which strikes us as very low". Speculation has, however, focused on US-based firms including Mondelez International and General Mills.

The firm warns however that agreeing a deal with Unilever is by no means assured.

Kraft Heinz is the fifth-biggest food and beverage company in the world and the third-biggest in North America. Enterprise Financial Services Corp now owns 1,280 shares of the company's stock worth $113,000 after buying an additional 100 shares during the last quarter. Shares fell 2.5 percent in the course of 2016, though European rival Nestle SA fared only marginally better, losing 2 percent in the same 12 months.

"This fundamentally undervalues Unilever", the maker of Marmite and PG Tips tea said. But this was confirmed, and later rejected, by the Anglo-Dutch food conglomerate.

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