The British-Dutch consumer goods company told shareholders the offer from Kraft Heinz of $50 per share, an 18% premium to its closing price on Thursday, “fundamentally undervalues Unilever.”
It added that it “sees no merit, either financial or strategic, for Unilever's shareholders” in Kraft Heinz’s current proposal, which if accepted would be one of the largest deals in corporate history.
The Share Centre’s Ian Forrest thinks Kraft Heinz’s decision to pounce on Unilever is likely driven by the weakness in sterling and the latter’s fall in share price over the past six months.
Although the firm’s shares benefited in the immediate aftermath of the Brexit vote, as anxious investors piled into defensive stocks, they began to taper after a pricing spat with Tesco.
“As a result of today’s news, we have currently put our current ‘buy’ recommendation of Unilever under review and would suggest that investors note that buying now may be unwise given the surge in the share price,” Forrest cautioned.
“This is cheap money meeting industrial logic,” agreed manager of the Hargreaves Lansdown Select UK Shares fund, Steve Clayton.
“Putting portfolios of brands together can create huge synergies across marketing, manufacturing and distribution, even before you think about cutting the combined HQ back to size. 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. With debt cheap and abundant right now, Kraft have spotted their opportunity,” he remarked.
At this stage, Clayton agrees with Unilever’s decision to spurn the first advance from Kraft Heinz.
“The long-term boost to portfolios that Unilever has delivered has been enormous,” he said. “A short term premium today is no compensation for losing the growth that Unilever could produce for decades to come. So to win over a majority of Unilever’s shareholders, we think Kraft Heinz will need to dig very deep indeed.”
After the news broke, Kraft Heinz released a statement, saying they ‘look forward to working to reach agreement on the terms of a transaction,’ implying a deal with Unilever could be imminent.
Unilever has given the American food titan until 5.00pm on 17 March 2017 to announce a firm intention to make an offer.