The Hot Stock: Kraft Heinz Jumps 11%

Kraft Heinz says it'll still keep trying after its surprise offer to buy British-Dutch consumer goods giant Unilever was rejected.

A statement from Unilever on the London Stock Exchange said the offer of $50 (£40) a share "fundamentally undervalues Unilever". But the two classes of Unilever (UL) stock surged more than 10% in premarket trading.

"While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction", said Michael Mullen, senior vice president of corporate and government affairs.

A deal would mark a major step-up in industry consolidation following this week's $16.6 billion agreed offer for baby-formula maker Mead Johnson Nutrition Reckitt Benckiser Group.

For comparison, the largest retail or consumer deal of 2015 was H.J. Heinz's $53.1 billion acquisition of Kraft Foods.

The markets had been waiting for Kraft Heinz to make a big move, something that has become a bit of a pattern.

The approach comes after Unilever's American Depositary Receipts in NY have largely missed out on the market rally of the last two years, although their United Kingdom -listed shares have done better because of the decline in sterling. "A tie up with Kraft Heinz would enable it to continue to improve profits in the same way", Jonathan Bell, Chief Investment Officer at Stanhope Capital, said in an email. It would pay $30.23 per share in cash and 0.222 of a share in a new enlarged entity per Unilever share, representing an 18% premium to the share price on Thursday. The company was forged by a $55 billion combination orchestrated by Warren Buffett's Berkshire Hathaway Inc. and 3G, which had teamed up two years earlier on a buyout of H.J. Heinz. That would have ranked second among food and beverage companies, trailing Nestle SA's $91.2 billion, according to data compiled by Bloomberg.

The offer comes less than a month after the London-listed firm reported a decline in full-year revenue, due to a combination of currency headwinds and hard market conditions in its Indian and Latin American operations. There is a view that the track record of buyout firm 3G Capital, one of Kraft's investors, could have hit the deal.

Having met its expectations for the year and quarter, the company now expects its multi-year Integration Program to deliver $1.7 billion in cumulative, pre-tax savings by the end of 2017, up from $1.5 billion previously.

  • Zachary Reyes