Kraft Heinz makes $143 billion acquisition offer to Unilever

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Events:

On February 17, Kraft Heinz [ ( ) ] made an offer to acquire Unilever [ ( ) ] for $143 billion.
As per the offer Kraft Heinz is to pay $50 a share to Unilever’s shareholders in the form of $30.23 in cash per Unilever’s share, plus 0.222 in Kraft Heinz shares.
The valuation offered is at an 18% premium to Unilever’s closing share price on February 16.
Unilever promptly rejected the offer while Kraft Heinz indicated that it could up it’s bid.

Kraft Heinz is backed by Warren Buffett’s Berkshire Hathaway and is run by partner Brazilian private equity firm 3G Capital.
In February 2013, Berkshire Hathaway & 3G Capital partnered in the $28 Billion acquisition of Heinz – the then biggest deal in food industry history.
3G Capital partner Bernardo Hees, Heinz’s CEO, drove EBIDTA growth by 35% through focusing on job cuts and plant closures.
In March 2015, the two firms partnered again for the $40 Billion acquisition of Kraft Foods – again the then biggest deal in food industry history.
Kraft Heinz saw it’s Operating Income and valuation sky rocket despite declining sales driven by cost cutting from plant closures and job cuts.
Unilever has been in a phase of undervaluation in the wake of a tumbling Euro post Brexit.

The leadership of 3G Capital and Berkshire Hathaway have a very strong and proven track record of cutting costs and turning around businesses in the Food Industry.
The current bid significantly undervalues Unilever and may not go through in it’s current state, particularly as Unilever is not in distress.
EU politicians could mount roadblocks given 3G Capital’s track record of cutting jobs and closing down plants.
Regulatory risk to the deal is significant, given the monopoly a potential merger could lead to in several markets.
Strategic opportunity appears to favor Kraft Heinz shareholders at the current bid level – unless revised further.