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omcik-blog · 8 years ago

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New Post has been published on http://omcik.com/unilever-promises-cash-to-shareholders-after-rebuffing-kraft-approach-reuters/

Unilever promises cash to shareholders after rebuffing Kraft approach | Reuters

By Martinne Geller | LONDON

LONDON Unilever (ULVR.L) (UNc.AS) promised a multi-billion euro program of shareholder rewards on Thursday after a corporate rethink sparked by a takeover approach from Kraft Heinz (KHC.O), aiming to prove it can generate lucrative returns as an independent company.

Under a restructuring sparked by the rebuffed $143 billion offer by its U.S. rival, the maker of Dove soap and Knorr soup set out an accelerated cost-saving plan, the sale of its Flora to Stork spreads business where sales are declining, and a review of its dual-headed Anglo-Dutch structure.

Unilever will also splash out 5 billion euros ($5.3 billion) on a share buyback and raise its dividend 12 percent this year.

Unilever, one of Europe’s biggest blue-chip stocks, called the Kraft episode a “trigger moment” to assess its business, as the global packaged goods industry faces slowing growth and greater competition.

Some analysts had speculated it would split into two in a dramatic strategy reversal, but executives said the current strategy was working while needing to be speeded up.

“We need to accelerate our plans to unlock further value faster, and this was brought home to us by the events of February,” Chief Executive Paul Polman said.

“There is no doubt that however … opportunistic it (the Kraft approach) was, it did raise expectations,” Polman said. “We are absolutely determined to use it as an opportunity to place Unilever on an even stronger footing.”

Unilever executives said their strategy of long-term steady growth had found support in talks they had held with investors including all of the group’s top 50 shareholders.

STRONG POSITION

GAM fund manager Ali Miremadi, who manages two worldwide equity funds that are 2.5 percent invested in Unilever shares, said the announcement was in line with expectations.

“They’re not stretching here, and nor should they. They’re in a very strong position and this is hopefully a sign they’re going to be a bit leaner and more shareholder-focused,” Miremadi said, adding Unilever should be able to deliver the premium Kraft was offering or more over the next four or five years.

Unilever’s London-listed shares, which hit a record 4,088 pence in recent weeks ahead of Thursday’s announcement, were up 1.3 percent at 3,989p by 1036 GMT, outperforming the FTSE 100 .FTSE which was down 0.4 percent.

The group said it would speed up a cost-savings plan, targeting a 20 percent underlying operating margin, before restructuring expenses, by 2020, up from 16.4 percent on the same basis in 2016.

The company previously forecast 4 billion euros of savings from 2017 to 2019 and has raised that to 6 billion. That includes doubling the savings target within brand and marketing investments to 2 billion euros and increasing supply chain savings from 3 billion euros to 4 billion.

About two thirds of these savings are to be reinvested in the business. It also sees 3.5 billion of restructuring costs over the three years.

Pitkethly told Reuters that much of the margin improvement would come from the food business, which it plans to combine with the refreshment business, which includes Ben & Jerry’s ice cream and Lipton tea.

SHARE BUYBACK

Unilever also said it would take on more debt, at least in part to finance acquisitions, targeting net debt of two times core earnings or EBITDA. Its leverage ratio has been below one time for more than half of the past 20 years, Jefferies analysts have said.

“Some had speculated Unilever could go to three times to free up even more cash, but it’s remaining fairly conservative,” said Neil Wilson, senior market analyst at ETX Capital in London. “The move ought to deter speculative bids such as that of Kraft Heinz. Unilever was vulnerable to a takeover exactly because it’s been so free of debt.”

Polman also signaled the company might be interested in the food brands being sold by Reckitt Benckiser (RB.L), saying it would have to decide what position to take.

The group will launch a share buyback this year of 5 billion euros having not had a buyback program in place since 2008.

Pitkethly said Unilever would consider combining its dual-headed structure – in Britain and the Netherlands – into one, in order to make future large-scale transactions easier. It said a review on the matter would be finished by the end of the year and would not be impacted by Brexit.

”The recent review has shown us that it can add complexity to structural portfolio change,” Pitkethly said.

Regarding the margarine and spreads business, one of its founding businesses, Pitkethly said it was already seeing a lot of interest, particularly from financial players such as private equity firms.

The company stood by its 2017 sales target of growth of between 3 and 5 percent, supported by brand and marketing investment of about 30 billion euros over the period to 2020. It said its margin would grow by at least 80 basis points this year.

(Editing by Greg Mahlich and David Holmes)

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drubblernews-blog · 8 years ago

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New Post has been published on http://drubbler.com/2017/02/19/kraft-heinz-drops-unilever-takeover-bid/

Kraft Heinz drops Unilever takeover bid

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Kraft Heinz says it has dropped its plan to buy Anglo-Dutch rival Unilever.

Marmite-maker Unilever rejected the US food giant’s bid on Friday, saying it saw “no merit, either financial or strategic” in Kraft’s offer, worth about $143bn (£115bn).

“Unilever and Kraft Heinz hold each other in high regard,” the companies said in a joint statement.

The deal would have been one of the biggest in corporate history, combining dozens of household names.

Unilever owns Ben & Jerry’s ice cream, Dove soap, and Hellmann’s mayonnaise, while Kraft’s range includes Philadelphia cheese and Heinz baked beans.

“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,” said Martin Deboo, a consumer goods analyst at Jefferies International.

More than half of the company’s shares are in the Dutch-listed entity, he told the BBC.

‘Friendly basis’

Michael Mullen, a spokesman for the company, said by email: “Kraft Heinz’s interest was made public at an extremely early stage.

“Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”

UK Prime Minister Theresa May had asked officials to examine the deal before it was scrapped, the Financial Times has reported.

The takeover of Cadbury by Kraft in 2010 was controversial enough to prompt a revamp of the rules governing how foreign firms buy UK companies.

Just a week after promising to keep open Cadbury’s Somerdale factory, near Bristol, Kraft backtracked and said it would close the plant.

The Panel of Takeovers and Mergers reviewed the laws and in September 2011 and strengthened the hand of target companies, and demanded more information from bidders about their intentions after the purchase, particularly on areas such as job cuts.

In July last year, shortly after becoming prime minister, Mrs May promised to have a “proper industrial strategy” that could be used to block takeovers.

Analysis

By Joe Lynam, BBC business correspondent

Kraft Heinz is jointly controlled by billionaire investor Warren Buffett and Brazilian private equity group 3G. The latter has a deserved reputation for taking a scythe to costs – irrespective of how that might impact jobs and factories.

Unilever, on the other hand, has a reputation for doing the right thing in terms of corporate social responsibility and the environment – even if that eats into the bottom line.

I understand that Kraft Heinz was shocked with the vehemence with which its “friendly” merger offer was rebuffed.

The bosses of both consumer giants spoke over the weekend and it was clear that if Kraft really wanted Unilever it would have to launch a hostile takeover bid that could have ended up being very expensive.

The higher the price, the less worthwhile the deal. So the bid was withdrawn within 55 hours of it being announced.

Shares in both companies rose sharply on Friday, as investors welcomed the news. A merger often aims to combine sales while cutting costs, flattering profits.

The combined group might have had more power to raise prices through a bigger share of the branded food market.

Unilever clashed with UK supermarket Tesco in October over its attempts to raise prices to compensate for the steep drop in the value of the pound.

The consumer goods giant has over a dozen sites across the UK, including three major plants in Liverpool, Norwich and Gloucester.

If the deal had proceeded, it would be the second biggest ever, behind Vodafone’s $183bn takeover of Germany’s Mannesmann in 2000, according to Dealogic.

Kraft’s offer was at an 18% premium to Unilever’s closing share price on Thursday, Unilever said. Unilever shares, however, rose just shy of that, by 13%. Kraft shares rose 11% on Wall Street.

“Unilever shares might be rough going tomorrow,” said Neil Wilson, senior market analyst at ETX Capital. The chance of other bidders emerging may be slim because of Unilever’s size, he added.

“For the government there must be a lot riding on defending British jobs and that’s going to make the hurdle for future foreign acquisitions all the higher, even if the pound’s weakness makes some companies appealing,” he added.

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