Paul Polman

Unilever CEO Paul Polman

We wrote in an analysis on Friday that the Kraft Heinz/Unilever story was looking a long way from being finished, with all the signs pointing to a classic takeover battle. But the war was over before it had even begun.

The US group shocked the industry for a second time in 48 hours on Sunday, withdrawing its approach and leaving the deal dead in the water.

A case of ‘move along people, nothing to see here’? Not quite.

The death of a combination that would have created the second largest food group in the world behind Nestlé raises as many questions as the proposal itself – not least why Kraft Heinz walked away (the lead analysis in this weekend’s issue of The Grocer will delve further into all the issues).

Kraft Heinz seems to have underestimated the wave of resistance from Unilever, politicians, supermarket bosses, unions, shareholders and commentators – not to mention public attitude. However, it shouldn’t have been too much of a leap of imagination to see why the march to effectively create a mega-corporation along the lines of Robocop’s Omni Consumer Products would cause concern for many.

Unilever CEO Paul Polman’s unequivocal response that there was “no merit” in a merger suggested no room to even consider a higher bid, leaving Kraft Heinz no option but to go hostile.

Chief backers 3G Capital and Warren Buffett wisely decided now was not the time for such a course of action given the sensitive political winds blowing through Westminster.

Former business secretary Vince Cable lent his weight to the opposition, calling on the PM to block the bid and warning of the “post #brexit disaster” that has left UK plc’s crown jewels vulnerable to foreign predators because of the hefty devaluation of the pound.

Even with that appealing discount, the famously penny-pinching owners of Kraft Heinz would have had to dig very deep to pull off a deal, offering far more than a mere 18% premium to Unilever’s share price.

So where does all this leave Unilever and Kraft Heinz?

The inevitable slump in Unilever shares this morning, wiping about £10bn off its value, is not all bad news. The stock is still almost 5% higher at £35.15 than where it sat on Friday before the offer became public. It may signal that the City expects further action and consolidation despite Kraft retreating.

Or it may be, as some analysts have argued, that Unilever has been undervalued for a long while. The fact that Kraft even weighed up a merger boosts the Unilever investment case considerably, but Polman can’t afford to bask in this mini-victory for too long.


While Unilever’s 7,500 UK employees may view him as a hero for resisting the overtures of Kraft Heinz, which would have undoubtedly left an axe hanging over many heads, there will be investor pressure for him to do something significant to accelerate growth and expand margins.

Unilever has, like many of its peers, not least Kraft Heinz, struggled for growth, with the Marmite and Dove owner missing sales expectations in the fourth quarter and warning the slowdown would continue until the second half of 2017 at least.

Polman has also been on the wrong end of pointed remarks about his time spent hobnobbing with the great and powerful at the likes of the World Economic Forum in Davos, casually dropping his close relationship with Barack Obama into conversations.

Some have wondered whether his focus on growing Unilever’s sustainability credentials has overshadowed concerns about slowing revenues – and The Sunday Times asked earlier this year after those disappointing annual results if ‘Persil Paul should stick to selling washing powder’.

However, the Unilever boss should be applauded for his sustainability-first agenda, including the serious attempt to tackle food and packaging waste in all its forms. His resistance to Kraft Heinz is a triumph of responsible long-term capitalism over a profits-before-all-else approach.

He now has to prove Unilever can deliver that long-term growth while retaining independence – and that is likely to need a step up in jettisoning stagnant brands such as Flora and other spreads at the very least.

As for Kraft Heinz, there is no way, when it has put in the hard yards on what would have been the second biggest corporate deal in history, that it would just walk off leisurely into the sunset with a shrug.

Warren Buffett and 3G Capital are not used to failing so spectacularly when it comes to dealmaking. The global fmcg industry – and likely targets such as Mondelez – will be on red alert as they mull their next blockbuster move.