Private Equity Firm 3G’s Big Takeover Plans Scrapped


February 20, 2017

3G plans of a major takeover have ended, as the firm announces it won’t continue pursuing food giant Unilever. The Brazilian private equity firm had been part of Kraft Heinz Co’s plan to purchase the US food giant for an estimated $143 billion. But the surprise offer did not manage to excite the Unilever ownership. However, the breakdown of the bid is unlikely to remove Kraft’s appetite for global domination.


The proposal was part of Kraft’s strategy of pursuing global domination in the food industry. The more aggressive market behaviour came about in 2013, when Warren Buffett’s Berkshire Hathaway and 3G teamed up to buy Kraft and in 2015, merged it with Heinz.


Details of the deal


Kraft’s decision to propose the merger came as a bit of a surprise, even though the company made its attempts publicly known from the start. Rumours of the approach circulated for a while, with the British takeover regulations forcing the company to announce its plans on Friday.


Unilever was almost as quick to reject the offer. In its statement, Unilever made clear the around $50-a-share proposal did not meet its valuation and the proposal offered no “basis for any further discussions”. Despite the early rejection, Kraft seemed eager to continue pursuing the deal at first. The private equity backers of the corporation met on Sunday to discuss the issue – the conclusion was to drop the bid altogether.


Kraft’s spokesman Michael Mullen said in a statement, “It is best to step away early so both companies can focus on their own independent plans to generate value”.


What went wrong?


Kraft’s bid was clearly not a welcomed move and analysts have different ways of explaining the lack of any interest to even negotiate. The Telegraph reported the chief executive of Unilever, Paul Polman, to have argued against the takeover. Polman has emphasised corporate social responsibility, proposing to double revenues while cutting its carbon footprint. According to the analysis, 3G’s cost-cutting strategies would not have fit with the long-term strategy of Unilever.


Analysts are also blaming the quick announcement as a possible cause. Due to the British regulations, Kraft was forced to come up with a bid that clearly didn’t create a positive start to any possible negotiations. Martin Deboo, an analyst at Jefferies International, commented to the BBC, “It would appear that Kraft Heinz have underestimated both the intrinsic value of Unilever and the challenge of acquiring control of a Dutch company whose stakeholders would have opposed such a move vociferously”.


The massive deal even caught the attention of the British Prime Minister Theresa May. According to newspaper reports, May had asked officials to look into the takeover. Kraft’s negative history in Britain could have prompted the investigation.


The setback is unlikely to dampen Kraft and 3G’s hopes of a takeover in a consumer goods company. The breakdown is likely going to enhance the company’s focus on talking to other potential targets, such as Mondelez. Unilever is definitely out of the equation, as Britain’s regulatory laws do mean the giant can’t make another bid towards the food giant in the next six months.

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