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Unilever surges on Kraft Heinz's $143bn takeover bid

Unilever surges on Kraft Heinz's $143bn takeover bid

Update: Shares in Unilever (ULVR) have surged after Kraft Heinz (KHC.O) launched a sensational $143 billion (£115 billion) takeover bid for the consumer staples giant.

Unilever jumped 13.4% to £37.97, helping to drive the FTSE 100 22 points, or 0.3%, higher to 7,300 on news of the bid, which Unilever has rejected.

Kraft Heinz said in a statement: 'Kraft Heinz confirms that is has made a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living.

'While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction.

Unilever said it saw 'no merit, either financial or strategic' in the offer, which represented a premium of 18% to its share price at yesterday's close.

'This is cheap money meeting industrial logic,' said Steve Clayton, manager of the HL Select UK Shares fund, who holds Unilever in his portfolio.

'Kraft Heinz are attempting a massive push on the fast forward button, for to acquire the sheer scale of brands that Unilever represents through one-off acquisitions could take decades,' he said. 'With debt cheap and abundant right now, Kraft have spotted their opportunity.'

Michael Hewson, chief market analyst at CMC Markets UK, said any deal would likely face barriers, even if Kraft Heinz were able to secure agreement from Unilever.

'The deal is likely to prompt a Marmite response, with the markets loving the idea given the share price reaction, there is a good chance that government will hate it, and it is inevitable that competition authorities and regulators will want to have a look at it,' he said.

'There will undoubtedly be competition concerns given how big any new company would be,' he added. 'A combined company would be huge in terms of the number of brands, not to mention pricing power.'

Michael van Dulken, head of research at Accendo Markets, agreed. 'The deal may prove less about finances, synergies and corporate merit, and rather more so about politics and hurdles,' he said.

'Theresa May will surely baulk at an opportunistic pounce being made thanks to a Brexit-induced weak pound making this deal 15% cheaper than it would have been a year ago,' he said.

Paul Hickman, analyst at Edison Investment Research, said Kraft Heinz's rejected bid was likely to spark a 'protracted negotiation process'.

'Kraft Heinz's approach demonstrates the pressure on brand owners to consolidate in the face of international pressure on margins and constraints to organic growth opportunities,' he said.

'With about 70% of revenue from Europe and Asia, Unilever's markets are complementary to Kraft Heinz, which has around 70% in the US.'

US investment legend Warren Buffett owns just over a quarter of Kraft Heinz, while just under a quarter is held by fund group 3G Capital Management.

News of the Unilever bid sparked a broader rally in the shares of consumer staples stocks, with Reckitt Benckiser (RB) rising 3% to £71.05 and Associated British Foods (ABF) 1.4% higher at £26.03.

Among the fallers, Rolls-Royce (RR) was down 4.1% as credit ratings agency Fitch downgraded its debt, while miners tracked the copper price lower.

Anglo American (AAL) fell 2.2% to £13.40, BHP Billiton (BLT) was down 1.6% at £13.92, Glencore (GLEN) dropped 1.5% to 319.6p and Rio Tinto (RIO) traded 1.3% lower at £35.98.

On the FTSE 250, Essentra (ESNT) was a strong riser, up 14.8% at 483.7p despite a profit warning from the plastics and packaging company, as investors judged the news less bad than feared.

PZ Cussons (PZC) jumped 2.8% as the personal healthcare product maker was buoyed by new of the Unilever bid.

The Finsbury Growth & Income (FGT) investment trust also rose, up 1.5% at 675p, thanks to manager Nick Train's 9.7% stake in Unilever.

Among 'small cap' stocks, Georgia Healthcare (GHGG) jumped 8.1% to 385p, after reporting a doubling of profits.

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Nick Train
Nick Train
5/155 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 40.19%
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