Kraft Withdraws $143 Billion Offer for Unilever -- 2nd Update

LONDON -- Kraft Heinz Co. dropped its $143-billion offer for rival Unilever PLC, just a little more than 48 hours after making an audacious bid to combine two of the world's biggest packaged-food companies.

In a brief statement Sunday, Kraft said it "has amicably agreed to withdraw its proposal."

A Kraft spokesman said the company's intention was to proceed on a friendly basis, and that its interest was made public at "an extremely early stage." After Unilever made clear it didn't want to pursue a tie-up, the spokesman said, "it was best to step away early so both companies can focus on their own independent plans to generate value."

The U-turn is a big victory for Unilever Chief Executive Paul Polman, who was digging in over the weekend to resist the unsolicited offer. The deal faced steep hurdles from the start -- first among them a determination by Unilever's board and management that the 18% premium Kraft offered to the company's value was inadequate.

Mr. Polman was ramping up a defense, telling board members and investors that Kraft's cost-cutting ethos could damage Unilever brands and highlighting its lack of experience in personal-care and household goods, according to people familiar with the matter.

While price remained key, Mr. Polman also wanted to protect Unilever's reputation for promoting sustainability initiatives, including environmental and human-rights efforts, according to people familiar with the matter. Some investors have complained in the past that Mr. Polman has spent too much time on those efforts, instead of focusing on returns. Supporters say the efforts help, including by attracting stronger talent.

In its statement, Kraft said it has the "utmost respect for the culture, strategy and leadership" of Unilever.

Still, price remained the biggest factor, after Unilever management rejected the $50-a-share cash-and-stock offer outright Friday. Directors had been considering a board meeting as early as this week, but serious discussions about Kraft's approach were never likely without a higher price, according to one person familiar with the matter.

Valuation aside, 3G Capital Partners LP, which orchestrated the 2015 merger of Kraft and Heinz with Warren Buffett, and remains Kraft's biggest shareholder, faced a host of other hurdles that made a deal more complicated to pull off. Unilever maintains a complicated dual structure in the U.K. and the Netherlands that gave governments, regulators, certain shareholders and other players outsize say in whether a deal got done.

In the Netherlands, the company's European Works Council, comprising worker representatives, must be kept apprised of deal developments. It probably couldn't have prevented a deal from happening. But with an election in the Netherlands being held next month, labor opposition could have triggered closer scrutiny by the government.

Meanwhile, two big institutional investors in the Netherlands were set to play an important role, and their sentiment over the deal was uncertain. Insurers NN Group NV and ASR Nederland NV, which is majority owned by the Dutch government, together account for about 20% of the voting rights in Unilever NV, the Dutch arm, according to a person familiar with the holdings. That translates into roughly 8% of the combined companies' voting rights.

In the U.K., the Leverhulme Trust, a research-focused charity, owns over 5% of the British arm of the company, according to FactSet. The trust was set up in 1925 by William Hesketh Lever, the founder of Lever Bros., which merged with a Dutch margarine maker to form Unilever. The trust's board includes Mr. Polman and two former Unilever CEOs. A trust representative didn't immediately respond to a request for comment.

(END) Dow Jones Newswires

February 19, 2017 14:17 ET (19:17 GMT)

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