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Bid Faces Two Sides Of Regulatory Coin -- WSJ

18 Feb 2017 7:32 am
By Jenny Gross, in London Natalia Drozdiak in Brussels and Maarten van Tartwijk in Amsterdam 

Kraft Heinz Co.'s plan to swallow Unilever PLC with a $143 billion offer doesn't just face winning over Unilever, which quickly said "no thanks" on Friday.

Should the Anglo-Dutch giant change its mind, antitrust regulators in the U.S., Europe and beyond are likely to give the deal close scrutiny. Unilever and Kraft are the No. 4 and No. 5 packaged-food makers globally by market share, respectively, according to Euromonitor. But their footprints are varied around the world. Kraft is much bigger in the U.S., while Unilever is stronger in several emerging markets.

The next potential takeover target for 3G Capital Partners -- the group, which along with Warren Buffett, orchestrated the 2015 Kraft Heinz merger and remains its biggest shareholder -- has been the center of much speculation lately. A lot of attention from analysts and investors focused on big U.S. food companies like Mondelez International Inc. But some questioned whether such a move -- and the workforce consolidation that could follow -- would run afoul of the Trump, which has made protecting U.S. jobs a priority and hasn't been shy about confronting companies over it. Setting Kraft's sights abroad could help sidestep such concerns.

Kraft's desire to expand its overseas operation could have political support at home as its workforce is just a quarter of the size of Unilever and the U.S. company already has attacked costs with its zero-based budgeting approach. The Trump administration has made clear its opposition to company moves that cost U.S. jobs.

The offer could raise more complicated political issues in Europe. Unilever has its headquarters in both the U.K. and the Netherlands. A proposed combination also would put another U.S. deal on the agenda of the continent's antitrust authorities in Brussels, which are weighing a deal between Dow Chemical Co. and DuPont Co.

The European Commission has been taking an increasingly skeptical view of large consolidation moves in various industries in the wake of some big, complex mergers in the beer, agriculture and financial-services sectors.

"The times of business as usual, big is beautiful, are completely gone" in Europe, said Nicolas Petit, a professor of competition law at the University of Liège. "In the past two years, the pendulum has swung back [for regulators,] and concentration matters again."

In the U.K., Kraft has stirred controversy in the past. In 2010, it acquired Cadbury PLC, in a tie-up that ended the independence of Britain's most famous candy company. At the time, U.K. lawmakers accused Kraft of going back on a pledge to keep a factory open. Kraft has said after a closer look, it realized plans to move production overseas were too far along to reverse. Prime Minister Theresa May in July took specific aim at Kraft's takeover of Cadbury during her campaign to become leader.

Britain's Unite trade union said in a statement Friday it opposed a Kraft-Unilever deal. The U.K. government said it was aware of the approach but wouldn't comment on specifics.

The U.K. is also in the middle of a bruising process of disentangling itself from the European Union, after a June referendum that sent sterling tumbling. That could draw any Kraft-Unilever deal into the bitter debate there over Brexit.

"Sterling's slump has left us in greater danger of losing control of some of Britain's best and biggest companies to distant multinational ownership," said Chuka Umunna, a member of Parliament for the opposition Labour Party, which opposed Brexit.

In the Netherlands, Unilever employs around 3,000 people and operates several plants and a research lab. The company was founded in 1929 through the merger of British soap maker Lever Brothers and the Netherlands' Margarine Unie, which began making the butter substitute in 1872.

Prime Minister Mark Rutte, himself a former human-resources director at the company, called Unilever "an important company, a proud company" and said his government will monitor developments. Mr. Rutte, though, said the approach by Kraft is "primarily Unilever's business and not the government's."

While the European Commission hasn't blocked any of the largest mergers recently, it has sought considerable remedies, though. In 2016, it required Anheuser-Busch InBev SA's to shed almost all of SABMiller's European assets as a condition of approving that roughly $108 billion combination.

Write to Jenny Gross at jenny.gross@wsj.com, Natalia Drozdiak at natalia.drozdiak@wsj.com and Maarten van Tartwijk at maarten.vantartwijk@wsj.com
 

(END) Dow Jones Newswires

February 18, 2017 02:32 ET (07:32 GMT)

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