A Thousand Tiny Sighs of Relief in Champs Fleurs

22 February 2017


 In this blog entry we look at Krafts proposed acquisition of Unilever through the second largest takeover in history. The offer – which came and went over the weekend before we even had a time to blink – would almost certainly have caused some discomfort for senior executives and employees at Unilevers subsidiary in Champs Fleurs. With a weakened pound UK companies may look increasingly attractive for overseas predators prepared to take on the risk of a post BREXIT UK.

A Firstline Securities Ltd. Blog by: Mike 

Now you see us, now you don’t

On February 17th 2017, it was announced that Kraft Heinz Co had made a US$143 billion offer to take over the Anglo-Dutch multinational Unilever Plc, a significantly larger competitor with 126,000 more employees and an annual revenue US$24 billion higher than Kraft Heinz.

For each existing Unilever share, Kraft Heinz offered $US30.23 in cash and 0.222 shares in a new holding company, representing an 18% premium over Unilever’s closing stock price last Thursday.

The subsequent news that the US food company Kraft Heinz Co was withdrawing its proposal on Sunday will almost certainly be welcome news for Unilever’s local subsidiary Unilever Caribbean Limited.

The offer has come and gone before many even had a chance to see it.

Who are Kraft Heinz Co?

 

 

 

 

 

Image Source:  http://tubularinsights.com/kraft-heinz-youtube/

Kraft Heinz Co is an American food company formed out of the merger of Kraft Foods Group and Heinz in 2015. The merger of the two entities was backed by the Brazilian finance group 3G Capital and Warren Buffett’s, Berkshire Hathaway. The combination of the two companies created a multinational worth in the region of US$46 billion. Together, 3G and Berkshire own 49% of Kraft Heinz.

Kraft Heinz are known for their aggressive cost cutting tactics and their willingness to relocate production to countries with lower costs of production. This approach is fundamentally at odds with the approach of Unilever (which would include its local subsidiary Unilever Caribbean), and would almost certainly have led to some discomfort over the weekend in Champs Fleurs for senior managers and employees alike.

Who are Unilever?

 

 

 

 

 

Image Source:  http://www.adweek.com/brand-marketing/unilevers-global-media-review-massive-and-will-take-most-year-162505/

Unilever is an Anglo-Dutch company co-headquartered in London and Rotterdam. It is the world’s third largest consumer goods company after Proctor and Gamble and Nestle. Unilever owns over 400 brands and its products are available in over 190 countries. As noted above, the company operates a subsidiary in Trinidad, Unilever Caribbean Limited.

Unilever has a portfolio of internationally renowned brands, but global sales have suffered particularly in some of its biggest emerging markets (as a group Unilever relies on emerging markets for close to 60% of its annual turnover), which is one reason why its share price has underperformed against the FTSE 100 over the last 12 months.

Unilever has a distinctly different focus and culture compared to Kraft, and is known for its commitment to balance profitability with environmental sustainability.

To all intents and purposes Kraft and Unilever are as different as “chalk and cheese”.

Unilever and Kraft in Trinidad and Tobago

Unilever Caribbean Limited operates a manufacturing and distribution business from its headquarters in Champs Fleurs in the Republic of Trinidad and Tobago. Approximately half of the value of its sales are derived from product manufactured in Trinidad with the remaining amount derived from goods imported from other companies located within the global Unilever brand.

Unilever Caribbean is responsible for servicing the domestic Trinidad and Tobago market together with 15 export markets all located within the Southern Caribbean. Exports out of Trinidad account for approximately 40% of the total turnover of the company.

Kraft operate in Trinidad and Tobago through a private company Kraft Foods (Trinidad) Unlimited.

Are BREXIT blues promoting merger and takeover activity?

Against most of the major world currencies the pound has lost over 20% of its value since the BREXIT referendum in June 2016.

Arguably the pounds BREXIT driven slump sets up British companies for a wave of foreign take overs and mergers since assets denominated in pounds are comparatively cheaper today than they were before the referendum. This is one factor Kraft would have considered in evaluating Unilever as a potential target.

Perhaps one of the reasons we haven’t seen a rush of merger and acquisition activity since the referendum is the ongoing political uncertainty in the UK will make it vitally important for acquiring companies to pick their merger and acquisition targets carefully, and beyond this, questions remain as to how protectionist the UK will become post BREXIT.

Burning Bridges?

There is some evidence that Kraft has sullied its own reputation and burnt a lot of bridges with the UK government because of its conduct in respect of the takeover of Cadburys in 2010.

The Cadburys deal is worth recapping because it lends support to the assumption that executives in Champs Fleurs did not have a comfortable weekend.

On September 7th 2009 Kraft made a hostile bid for Cadburys. This bid was initially rejected by the Cadburys board, but an improved offer was received and accepted on the 19th January 2010. On approving the offer the Cadburys Chairman stated that “we believe this offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values, and people throughout the world.”

On the 17th March 2010 Cadburys stakeholders found out that this commitment went only so far with Kraft announcing the closure of Cadburys Somerdale factory, and against earlier promises to retain operations in the UK, outsourcing the production undertaken at Somerdale to Poland.

Not surprisingly, on the announcement of Kraft’s bid for Unilever, the UK’s Prime Minister (Theresa May) ordered officials to investigate the deal on the basis that it posed a significant threat to the UK’s economic interests.

Can Kraft come back to the table?

Under the terms and conditions relating to takeovers in the UK, Kraft’s public withdrawal of its offer precludes it from reviving any talks of a takeover with Unilever for a six-month period.

In six months’ we will have a much clearer idea what Brexit will mean for the UK and the rest of Europe, since if current plans are followed the UK will have triggered Article 50. If the pound is to slip further against other currencies Unilever and other UK companies would look even more attractive to overseas predators.

In other words, don’t rule out a return to the table…

A footnote

As a footnote, the combination of Kraft and Unilever – had it taken place – would have been the second largest takeover in history with projected annual sales exceeding $82 billion. The current record for the largest takeover in history occurred in 2000 when Vodafone took over Germany’s Mannesmann in a US$183 billion deal.

Closing thoughts – time to consider your investing strategies

Firstline Securities Limited offers comprehensive coverage of local and international markets with a bias for the energy sector. Firstline offers many unique opportunities to put surplus cash to work either as your asset manager or investment advisor. Please contact us for more details at info@nullfirstlinesecurities.com or at 868.628.1175, we can discuss your investment needs in detail and craft a portfolio that makes sense for you. We look forward to hearing from you.

 

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