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Analyst sees 75 percent chance Kraft Heinz will revisit Unilever with hostile bid

Jeff Daniels

Kraft Heinz (NASDAQ: KHC) isn't finished with Unilever (Euronext Amsterdam: UNA-NL) and could come back with a sweetened bid of around $200 billion for the Anglo-Dutch consumer goods conglomerate, according to a report.

"We are now coming around to the view that a hostile bid for [Unilever] is more than 75 percent likely," said Susquehanna analyst Pablo Zuanic in a research note Sunday.

In February, U.S. food giant Kraft Heinz failed in its attempt to take over Unilever for $143 billion in a deal that was backed by two major investors in Kraft Heinz, private equity firm 3G Capital and Warren Buffett 's Berkshire Hathaway (NYSE: BRK.A).

Zuanic estimates a new deal, however, would bring the takeover price "close to $200 billion."

Even with a higher bid, he said a merger "remains a 'good fit' as with it KHC expands in food and builds an HPC [or home and personal care] platform."

Unilever's personal care brands include Dove, Vaseline and Pond's, among others. Kraft Heinz's major brands include Oscar Mayer, Grey Poupon, as well as its famous ketchup.

"By mid-August, the six-month hiatus required by British takeover law will have passed, and KHC could proceed to make a hostile bid for Unilever," said the Susquehanna analyst.

Kraft Heinz and Unilever declined to comment.

"We think it is telling KHC has done nothing (M&A wise) for the past five months," he said.

At the same time, Zuanic explained that a "rebuff/defeat is not something 3G/KHC can tolerate if they plan to continue to roll-up the [consumer packaged goods] space."

Unilever's U.S.-traded stock is up 34 percent so far this year and is also higher since the original proposal was rejected. Shares of Kraft Heinz are down almost 5 percent this year, while the broadly based S&P 500 Index (INDEX: .SPX) is up more than 8 percent.

"We doubt anything less than a 20 percent premium could entice Unilever shareholders (assuming KHC goes hostile)," said Zuanic.

At around $200 billion, the analyst said the deal would be "25-35 percent equity funded" and adds that it could include "a mix of $10-$12 billion equity investments each by 3G and Berkshire." Moreover, he believes asset sales from the combined company also might make a revised deal more palatable.

In particular, Zuanic said asset sales could generate between $25 billion and $35 billion. He said they could include everything from selling Unilever's ice cream or cosmetics business to unloading Kraft Heinz's frozen foods, coffee or Oscar Mayer businesses.

After the Unilever deal failed, Buffett was asked on CNBC's " Squawk Box " about what happened and said the offer was not intended to be a "hostile offer," but "may have been interpreted that way."

Zuanic said "the impediment" for a deal to happen is not regulatory in nature but billionaire Buffett's preference "to go where he is welcome" and not do hostile bids. Then again, the analyst believes Buffett "will come around."

Regardless, Unilever's CEO Paul Polman told "Mad Money" host Jim Cramer in May that the company was doing just fine on its own and he wasn't impressed by the Kraft Heinz offer.

"In the end, our strategy...in investing is Warren's strategy," Polman said. "And my returns have been higher in the last eight years than Warren's returns. So I think it's better if he leaves us with what we know how to do well."



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