NEW YORK (Reuters Breakingviews) - Almost nothing made by Kraft Heinz or Unilever has an expiration date of just two days – except, that is, for their $143 billion merger. Kraft, the American ketchup-and-cheese concern controlled by Brazilian investment firm 3G, withdrew an offer to acquire its Anglo-Dutch counterpart on Sunday after an inopportune leak put the knickers of British politicians and unions in a twist. But the idea of pairing 3G’s ruthless cost management with Unilever’s innovative bent won’t easily fade from shareholders’ minds.
The premature exposure of Kraft’s bid on Friday morning left the aggressive acquisition machine scrambling to craft an appetizing message for shareholders, the press, Unilever’s rank and file and, perhaps most importantly, British and Dutch leaders - the latter of whom are weeks away from an election. In the post-Brexit era, acquisitions of iconic British firms are receiving extra scrutiny. Prime Minister Theresa May suggested as much in a July speech, referring to an aborted pharmaceuticals merger.
So any notion that the producer of beloved English brands such as Marmite yeast spread, Lipton tea and Colman’s mustard would succumb to the cold-blooded clutches of 3G and the maker of Cheez Whiz was going to cause a stink. Kraft would have needed to plot a major charm offensive, emphasizing Unilever’s culture of driving growth through new products and promising to keep jobs in the United Kingdom and elsewhere. But the deal’s leak put Kraft and its backers, who also include billionaire investor Warren Buffett’s Berkshire Hathaway, on the back foot.
Nonetheless, the logic of the combination made sense to investors in both companies, whose shares surged on the news. Kraft’s focus on zero-based budgeting, in which it reassesses all of its costs annually, has allowed it to squeeze out a 23 percent operating profit margin, far higher than Unilever’s 15 percent. But Unilever has managed to grow its top line, and in attractive emerging markets, in ways that Kraft will need to consider as its scalpel runs out of places to trim costs.
Kraft may have lost the first round in its attempt to set the table for the biggest food orgy in the industry’s history. But the maker of A1 Chicago Steakhouse marinades knows a thing or two about letting things marinate and season before serving.
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