5 Things : Warren Buffet Ruthless Deal Making Behind Kraft Heinz Failed Bid For Struggling Food Giant Unilever
Warren Buffet,the world’s number one deal marker, credits his success to this strategy where he identifies undervalued businesses, buys low, then flips them for profit if need be. The keyword here is businesses not companies. Recently, Warren Buffet was at it again this time in partnership with a Brazilian private equity firm, 3G Capital. With coca-cola already under his belt, Warren Buffet forges on with sculpting 21st century food business in his image
Business analysts have labelled the Warren Buffet driven Kraft Heinz bid for struggling household goods giant Unilever a strange one for several reasons that we will explore in this post.
This merger should be an interesting one given that these are not early days when we hardly understood the investment strategy of Warren Buffet. This Kraft Heinz- Unilever bid comes after we have all read Benjamin Graham’s Intelligent Investor. This, the more reason why we should curate five things that entrepreneurs shadowing their investment strategy on Warren Buffet need to know about the Kraft Heinz bid for Unilever.
If the merger pulls through, the $143B deal will be the second largest ever in the food industry space. It will also create the world’s second largest food and beverage in revenues with the merged Kraft Heinz- Unilever churning out $84.8 B last year second only to Nestle SA $91.2 Billion.
2. Warren Buffet Is Taking Over Food Industry
In the century last, Warren Buffet through his investment vehicle Berkshire Hathaway Inc. had Coca-Cola. In the 21st century, the world richest man wants its all. Together with Brazilian Private equity firm, 3G Capital, they crafted the $55 billion Kraft buyout of H.J. Heinz. Just like in this mega money deal, Warren Buffet is expected to finance the Kraft bid of Unilever with 3G Capital left to take care of the every day running of the business post the deal.
3. The Ugly
3G capital have built themselves a nasty reputation in their buyout streak within the food and beverage industry. However, observers credit the cost cutting and job losses that follow such deals not to 3G capital ruthlessness as investors, but to the industry slow growth as millennials adopt healthier lifestyles in the 21st century.
4. Unilever the Unwilling Suitor
Media reports have described Kraft bid in all sorts of ways including calling the Warren Buffet sanctioned deal unsolicited and hostile. This is because Unilever’s management term the proposed $50 per share bid + stock as an undervaluation. Reality though paints a different picture as Warren Buffet and 3G Capital’s valuation presents an 18% premium on current stock market prices.
As entrepreneurs seeking to learn from the greats, we await to see if Unilever’s protestations are just a ploy. A smoke screen to hold out for a better deal or even attract other suitors. With more suitors, Unilever shareholders will benefit from the ensuing bidding war.
Update: Maybe, Unilever finds the Kraft-Heinz offer revolting.
However, of note to entrepreneurs seeking to invest in the UK , Unilever’s rebuff may actually be of tremendous weight. This is because as under UK law, Kraft Heinz has a month to make a firm bid or walk away for six months.
5. Super Clash of Company Cultures
As New York Times reports :
They are radically different cultures,” said Mindy Lubber, chief executive of Ceres, which promotes responsible business practices. “Unilever is the most transparent and open company there is about sustainability being part of their mission. They see it being part of their business proposition.” Kraft Heinz, by contrast, is among the companies least committed to sustainability, Ms. Lubber said. “Kraft Heinz doesn’t even release a sustainability report, which in the year 2017 is shocking for a multinational company.”
The future of the food and beverage industry in the 21st century rests on this deal coming through. As we await how it pans out, we can fortify entrepreneurship lessons from the Warren Buffet investment book:
- Buy great business when low reigns supreme. Here, note Unilever’s undesired position that would scare away less savvy investors. There is market pessimism over packaged food and beverage industries prospects).
- Work with the right management who know the sector. 3G Capital was behind Anheuser-Busch InBev’s takeover of SABMiller and the combination of Kraft and Heinz.
For those seeking to learn how to be successful entrepreneurs, the take home message is the importance of minding the political environment. In this case here, although Warren Buffet has developed a tried and tested way of deal making, this deal will likely get held up by UK Brexit negotiations. Besides, Donald Trump’s policies of “Buy American Build America” are likely to confabulate things.