Kraft Heinz in talks to buy fellow food giant Unilever for US $143B

From: CanadianManufacturing.com

Kraft Heinz is attempting to buy Unilever in a US $143 billion deal that would create a global food leader that sells products including cheese, lunch meats, spreads and snacks.

U.S. food giant Kraft Heinz Co. says its offer to buy Europe’s Unilever was rejected but it’s still pursuing the deal.

The maker of Oscar Mayer meats, Jell-O pudding and Velveeta cheese said, though, there’s no certainty that it will make another offer for Unilever, which owns brands including Hellmann’s, Lipton and Knorr. Unilever said Kraft’s offer is too low, and that it sees no reason to continue talks with Kraft.

The shares of both companies surged to new highs early in trading.

The deals underway in the packaged food industry are a symptom of the strains being felt by its major players. Companies like Kraft Heinz, two century-old companies that became one in 2015, are trying to fatten profits even as sales growth weakens.

Last year Mondelez, which makes Oreo and Chips Ahoy, retreated from its attempt to take over Hershey.

The tie-up between Kraft and Heinz was engineered by Warren Buffett’s Berkshire Hathaway and Brazillian investment firm 3G Capital, which has a history of taking over companies and aggressively cutting costs.

Executives pitched the deal as the path to enormous savings because the companies would be able to utilize the same manufacturing and distribution networks.

Bernardo Hees, the CEO of Kraft Heinz and a 3G partner, has made job cuts and is pursuing other savings, some of them granular. In a memo sent to employees in the summer of 2015, Hees reminded them to print on both sides of the paper, reuse office supplies like binders and to turn off computers before leaving the office to cut down on energy costs.

The company also stopped stocking the corporate office with free Kraft snacks.

Coca Cola Co., General Mills Inc., Kellogg Co., and PepsiCo Inc., under pressure from Wall Street, have all slashed costs and are trying to find products that suit the fickle and shifting preferences of customers.

They’ve done that through an array of acquisitions of smaller, faster growing brands. Campbell Soup is trying to shed its canned-food image. It bought juice and bagged carrots maker Bolthouse. General Mills now owns Annie’s, Hormel owns Applegate meats and Justin’s nut butters, and Dr. Pepper recently bought Bai Brands, a maker of drinks sold as rich in antioxidants. But megadeals are harder to pull off.

Shares of Kraft Heinz rose 8 per cent Friday. Unilever PLC jumped almost 12 per cent.