Yahoo Finance Theresa May must take £115bn hint from Kraft Heinz's failed Unilever bid
Warren Buffett and his Brazilian private equity chums at 3G, the main players at Kraft Heinz, must process their cheese and beans on another planet. The US firm abandoned its £115bn bid for Unilever, we’re told, because it wasn’t expecting its proposal to receive such hostility from Unilever’s board and a few British and Dutch politicians. If that explanation is correct, Kraft’s crew of billionaires should get out more. Did they miss the debates that have raged over rootless global companies, asset-stripping deals and the UK’s open-doors policy on takeovers? Hostility was predictable and justified.
Unilever’s board was always likely to reject the chance to be bought by a financier-led firm in search of another target for its job-cutting formula. Unilever’s chief executive, Paul Polman, lectures the world on the importance of looking beyond the next quarter’s earnings and was not about to trade 100 years of corporate history for an uncertain ride on 3G’s debt-propelled takeover machine. A miserly initial offer, comprising a takeover premium of only 18%, will only have strengthened Unilever’s sense of indignation.
Nor should it have required genius to see that Kraft Heinz’s charmless approach to business would be viewed with suspicion elsewhere. Kraft is chiefly remembered in the UK for reneging on a jobs promise made during the takeover battle for Cadbury in 2010. The UK and Dutch governments have an interest in protecting their tax bases against the 3G-style technique of loading acquisitions with debt and thereby reducing taxable earnings. If Buffett and Jorge Paulo Lemann, 3G’s co-founder, couldn’t see outrage in the offing, they were astonishingly naive.
The other conclusion is more important than Kraft Heinz’s lack of preparation. Theresa May, as she struggles to define what she means by “an economy that works for everyone”, should realise that not every would-be predator will succumb to nerves at the 11th hour. The time is ripe to insist that mega-bids of this type should pass a public interest test.
Last July, in her campaign to secure the Tory leadership, May seemed keen on the idea when she cited Pfizer’s failed tilt at AstraZeneca in 2014 and declared: “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.”
Unilever’s collection of soap suds, margarines and ice creams are not national trophies like AstraZeneca’s science labs, but the point remains: how can you hope to run a successful industrial strategy if your best and biggest companies can be picked off by an opportunist bidder with a greater appetite for debt and less interest in long-term investment?
This is not, incidentally, primarily a Brexit question. Unilever’s sterling-denominated shares rose sharply after the referendum because it makes the bulk of its profit overseas, so Kraft Heinz wasn’t merely trying to exploit a currency opportunity. Rather, the primary opportunity was old and familiar – the fact that it is easier to mount a takeover bid in the UK than in almost every major economy in the world.
An open-doors policy on takeovers has some advantages, of course – it can hold lazy managements’ feet to the fire and avoid the supposed peril of politicians attempting to pick winners. But, come on, Unilever is not some ailing conglomerate in need of revitalisation. It is a successful business that pays reliable dividends and whose share price has doubled since 2010. The appeal for Kraft Heinz is not hard to fathom: the US firm probably calculates that profit margins could be even higher if it ran the business harder and ditched Unilever’s worthy words about behaving with a sense of corporate responsibility.
Polman, it should be said, doesn’t always help his own case by sounding so sanctimonious about sustainable capitalism. But his basic approach is sound. Unilever is prepared to be held to account by outsiders in a manner than would be hard to imagine under Kraft Heinz’s ownership. The only certainties in a takeover would have been heavy job losses and higher levels of financial leverage. In those circumstances, it seems reasonable for government to examine takeover plans in detail – or appoint an independent body to do so – to see how they fit with the public interest.
May, in her speech last summer, got her tone roughly correct: there would not be an automatic right to block a deal and interventions might be rare in practice. But what happened to such sensible talk? The government’s 130-page green paper on industrial strategy in January completely ignored takeover policy. It looked as if May had decided the subject was too difficult to address. She should wake up. The next highly charged bid will probably last longer than 48 hours and voters will want to know why the prime minister failed to acquire powers she promoted herself. Take a £115bn hint and form a policy.
