The Kraft Heinz takeover of Unilever looked good on paper. Why did Unilever refuse to consider it?

By Tina Irgang

On Feb. 19, Kraft Heinz announced it was withdrawing its $143 billion bid for fellow consumer-brand conglomerate Unilever, just two days after that bid first became public knowledge. The deal collapsed due to uncompromising opposition from Unilever, which declined even the prospect of discussions. What was behind that opposition, and what’s next for the two companies?

Unilever’s refusal to consider a deal seems to fly in the face of industry trends, notes The New York Times. It comes “at a time when giants in the [consumer-product] fields have been looking to combine to command more space on grocery shelves. A combination of Kraft Heinz, itself the product of a mega-merger, and Unilever would have sold everything from Heinz ketchup and Oscar Mayer hot dogs to Hellmann’s mayonnaise, Dove soap and Lipton tea.”

Unilever’s decision also seems puzzling given that its shares rose 15 percent once news of the Kraft Heinz bid emerged, The Times adds. (Kraft Heinz shares also saw a jump, albeit a slightly smaller one.) Once Kraft Heinz withdrew, Unilever’s shares plunged to their worst one-day performance since 2008, The Guardian reports.

Unilever’s reasoning was that the bid — which offered an 18 percent premium on Unilever’s share price as of Feb. 16 — “‘fundamentally undervalues Unilever’ and has ‘no merit, either financial or strategic, for Unilever shareholders,’” according to The Street.

What’s more, “[Unilever’s] 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,” reports Bloomberg.

Others have argued that Unilever’s refusal was prompted at least in part by the poor timing of the announcement that a deal was being offered. “Kraft Heinz’s position was … weakened by the fact that rumors of the deal leaked before the U.S. company was ready. This meant Kraft did not have the time to woo key investors before going public with its interest,” as The Guardian puts it.

What’s next for Unilever and Kraft Heinz?

So is this definitely the end of the road for a possible Kraft Heinz-Unilever merger?

It seems so, at least in the short term. Warren Buffett, whose Berkshire Hathaway was one of the main engineers of Kraft Heinz’s bid, has in the past expressed distaste for hostile takeovers, so it’s unlikely that he would mount another bid in the face of Unilever’s opposition, notes Investors.com.

In the meantime, Kraft Heinz is likely to keep pursuing high-profile acquisitions. “Analysts have speculated Kraft Heinz would soon turn its attention to Mondelez International,” says The Street. “Indeed, on Friday, after Kraft announced its intention to acquire Unilever, shares of Mondelez fell as investors assumed there would be no suitor for Mondelez.”

Colgate Palmolive, Clorox, Procter & Gamble and Kimberly-Clark are all on the list of possibilities as well — and saw their stocks inch up on the news that the Unilever bid had failed, according to Investors.com.

So what’s the effect on Unilever? CEO Paul Polman now is left with something to prove, says Bloomberg. Over the next few months, he “will face pressure from investors to accelerate growth and boost Unilever’s profit margins. While Polman has already announced cost-cutting plans, he may raise those targets.”

If Unilever doesn’t live up to expectations, Kraft Heinz may well come knocking again.

Tina Irgang is SmartCEO’s managing editor. Contact her at tina@smartceo.com.