Paul Polman, Unilever CEO

Unilever’s strongly worded rejection of Kraft Heinz’s £115bn approach today did not sound like the words of a board about to roll over and accept a slightly higher offer.

Given that the Unilever board “sees no merit, either financial or strategic” for the potential merger, Kraft Heinz faces a long and protracted battle to get what would be the biggest fmcg of all-time over the line.

But the Unilever board is unlikely to be the only interested party less than enamoured with the prospect of Unilever being taken out.

Clearly, there are the obvious competition issues that a deal on such a scale would bring and given the collection of major food brands owned by Heinz and Unilever combined.

Unilever’s emerging markets focus and Kraft Heinz’s reliance on North America means the geographic fit is not unreasonable. But competition investigations are also political in nature - and that is where the tie-up could struggle.

Post-Brexit landscape

The bid is already highly influenced by Brexit, given the plunge in the value of the pound has effectively made every UK business around 15% cheaper to acquire.

In today’s hyper-sensitive post-Brexit social and political environment in the UK, it would reflect rather badly on UK PLC if yet another of its (admittedly part-Dutch) corporate crown jewels was snapped up by foreign predators.

If the UK is to be a successful global economic force post-Brexit then it cannot be seen to be “selling the family silver” at knock-down prices. If Unilever falls it starts to make every UK company look vulnerable to international predators.

The UK government will also be keen to avoid the messy fallout generated by then-Kraft Foods’ 2010 takeover of Cadbury. The job losses and broken promises that followed that contentious deal have doubtless had an impact on how international approaches for well-known British success stories are received - as the failure of Pfizer to buyout UK drugs firm AstraZeneca in 2014 amid political and media protests proved.

And it’s likely there would be significant political fallout from the deal as the 3G Capital/Berkshire Hathaway model of cost cutting and efficiencies would almost inevitably lead to manufacturing rationalisation and job losses.

Then there is the potential destruction of the Unilever social brand in the pursuit of margin gains. Unilever has won widespread plaudits for CEO Paul Polman’s Sustainable Living Plan and efforts to do business “the right way”, while Heinz was recently understood to have been placed bottom of the Advantage Report - a UK survey based on retailer attitudes to suppliers.

Even if UK regulators do not find a way to block the deal, it’s likely the EU will be just as keen for Unilever to remain in non-US hands.

Of course the success of otherwise of the approach comes primarily down to the Unilever board and shareholders. Kraft Heinz will surely have to stump up far more than $50 a share to entice a total of 75% of shareholders with the offer.

3G Capital/Berkshire Hathaway model

Kraft Heinz are likely to come back with a bigger offer. But the premium also needs to take into account some of the more strategic concerns about the fit of the companies.

There are already issues with an apparent clash of cultures, but there are also concerns as to what Kraft Heinz can bring to the table when it comes to growing a combined group’s sales globally.

The 3G Capital/Berkshire Hathaway model is to focus on the bottom line and take advantage of the synergies and cost-efficiencies generated by acquisitive growth. This has been a huge success at AB InBev, a fair success at Heinz and the jury is still out on the Kraft/Heinz merger.

But this focus on the bottom line will not be a radical new approach at Unilever. Sure, every company can always cut more, but Unilever’s problems at the moment appear to be more with generating continuous top-line growth than necessarily improving margins.

In its fourth quarter, Unilever missed organic growth expectations (+2.2% against +2.8% forecast) amid slowing growth in China, India and Brazil and a slow start to 2017. But in the face of these “challenging conditions” it still managed to grow margins ahead of expectations and earnings per share by 7% at constant currency.

Given where Unilever is as a company, it’s not clear that the ‘3G’ model is a suitable or desirable long-term approach for the business.

As a wall of opposition beginning to line-up against the bid it looks doubtful that Kraft Heinz’s famously thrifty owners will be willing to dig deep enough to pull off what could become the biggest corporate takeover in history.

But ultimately it is clear that they have deep pockets, a desire to do more huge consumer deals and that more consolidation in global fmcg is on the way in some form.