Unilever Offer Whets Appetite for Food Firms
Long-dormant U.S. food companies are suddenly being appraised like so much fine wine.
An $18.4-billion offer by international food conglomerate Unilever for Bestfoods, with brands including Skippy peanut butter, Hellmann’s mayonnaise and Knorrs soups, has rekindled interest in the sleepy U.S. packaged food industry.
Investors were so enthusiastic Wednesday at the proposition of a wave of food company takeovers that they bid up the stocks of virtually every well-known U.S. food company.
The surge came despite a broad sell-off throughout the rest of the stock market that saw the Dow Jones industrial average fall 250.99 points.
Bestfoods’ stock benefited the most, climbing $10.69, or 21%, to close at $61.25. Campbell Soup Inc., up $3.06 to close at $29.56, and H.J. Heinz Co., up $3.69 to close at $37.63, also saw strong gains. Quaker Oats Co. closed up $3.31 at $69.56, and Sara Lee Corp. rose $1.19 to close at $16.31. But Unilever’s U.S. shares slipped $2.31, or 5%, to $43.13. All the companies’ stocks trade on the New York Stock Exchange. Unilever’s American depositary receipts fell $2.19 to close at $22.56, also on the NYSE.
Unilever on Wednesday gave Bestfoods until the end of business today to reconsider its bid, but analysts said it would have to sweeten the offer by $3 a share to get Bestfoods to the table. Unilever did not say what it would do if Bestfoods ignores the deadline.
Speaking to reporters after the company’s annual meeting, Unilever Chairman Niall FitzGerald refused to comment on whether Unilever, based in the Netherlands, would raise its bid, launch a hostile takeover attempt or walk away from the offer.
The news of Unilever’s offer means that two of the largest U.S. food companies are now takeover targets.
Nabisco Group Holdings Corp. put itself on the market last month after financier Carl Icahn said he was prepared to buy the company, which owns a controlling stake in the maker of Ritz crackers and Oreo cookies.
The fact that Englewood Cliffs, N.J.-based Bestfoods rejected Unilever’s bid of $66 a share, or a 31% premium on Bestfoods’ closing price Tuesday, shows that Bestfoods feels it has strong leverage in any negotiations, analysts said Wednesday.
That’s because the huge multinational companies that are looking to expand their markets through acquisitions of smaller companies know they will need to add strong brand names, similar to those now owned by companies such Bestfoods, Heinz and Campbell Soup.
“They need more power brands,” Prudential Securities analyst John McMillin said.
That need evidently served as the impetus for Unilever’s recently announced acquisitions of gourmet ice cream company Ben & Jerry’s for $326 million and diet food company Slim-Fast Foods for $2.3 billion.
The global food industry has grappled with slow sales growth for much of the last decade, said William Leach, an analyst at Donaldson, Lufkin & Jenrette, a New York investment bank.
Consequently, food company executives are under pressure to expand their markets while they cut costs.
And the best way to do that is to acquire well-known brand names that can be sold through existing distribution systems.
Another factor adding to the apparent urgency of large food companies to purchase smaller ones has been consolidation within the retail grocery store sector.
As grocery chains have merged and become larger and stronger, food companies have realized that they must keep pace, said McMillin.
“You can’t have your customers getting bigger and bigger and you’re doing nothing,” he said. “You’re forced to find partners to gain some scale so you can look them in the eye.”
Although Unilever’s $18.4-billion offer for Bestfoods fits comfortably into the changing landscape of the food sector, analysts said the proposal was unique in several respects.
First, it was the largest of its kind for more than a decade, since British distiller Grand Metropolitan bought Pillsbury Co. for $5.8 billion in 1988.
Second, $18-billion deals aren’t expected to come along every day because only two companies, Unilever and Nestle, can afford to pay such a high price.
So in the absence of numerous large companies being bought by even bigger companies, analysts expect so-called mergers among equals.
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Savory Day
Bestfoods shares surged 21% to $61.25 in a down market after the company disclosed Unilever’s unsolicited bid of $18.4 billion, or $66 a share. Weekly closes and latest:
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Wednesday: $61.25, up $10.69
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Source: Bloomberg News
