US food giant Kraft Heinz has approached Unilever about a merger that would represent one of the biggest tie-ups in corporate history, but the Anglo-Dutch company declined a deal.
“Kraft Heinz confirms that it has made a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living,” Kraft said in a statement on Friday.
“While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction.”
The company added, however, that “there can be no certainty that any further formal proposal will be made to the boards of Unilever or that an offer will be made at all or as to the terms of any transaction”.
UK listed shares of Unilever surged on the news and were recently trading around 13 per cent higher on the day.
Kraft, which is controlled by private equity firm 3G Capital and backed by veteran financier Warren Buffett, is best known for brands like Philadelphia spread, Capri Sun soft drinks, HP Sauce and Heinz ketchup.
Unilever’s brand include Domestos, Dove and Persil.
According to Thomson Reuters data, Kraft currently has a market cap of around $106bn (£85bn), compared to Unilever’s €117bn (£100bn) before Friday’s announcement, meaning that a deal would be one of the biggest corporate tie-ups in history.
“The combined entity would have a huge brand footprint and be able to flex bargain muscles even more with supermarkets,” Neil Wilson, a market analyst at ETX Capital in London, said.
He said that any deal would likely face major scrutiny from regulators and competition authorities, “as it would create a giant in the sector”.
Global corporate merger and acquisition activity has flourished in recent quarters and last month marked the busiest January for deals in Europe, the Middle East and Africa in over a decade, according to data from Thomson Reuters.
Deals completed last month in the region had a total value of $90.8bn, according to the company, which was the highest volume for any January since 2006.
Johnson & Johnson’s $29.3bn takeover of Swiss biotech company Actelion and the $25bn merger of Italian eyewear group Luxottica and France’s Essilor particularly boosted volumes.
Cross-border deals also rose to their highest January level since 2006 this year, hitting $106.8bn, up 31 per cent on January 2016.
Globally, M&A activity hit $258.2bn in January, a 38 per cent surge on the same month last year and the highest level for the month since 2011, according to Thomson Reuters.
News of the possible deal between Kraft and Unilever comes at a challenging time for both companies.
Kraft, which is the world’s fifth-largest food and beverage company, has in recent years been forced to adjust its product range to adjust to consumers changing preferences and a trend towards fresher, non-packaged items.
On Thursday, the company announced that sales had fallen 3.8 per cent to $6.86bn in the quarter to the end of December, hit by a stronger dollar and lower demand.
“Consumer choices are changing, we are moving away from processed foods and towards fresh. Millennials will soon surpass the baby boomer generation as the largest living generation and millennials are not keen on processed food,” said Mark Jones, a solicitor and food and drink industry expert at legal firm Gordons.
“The packaged food businesses have seen their sales growth slow in the last few years and because of this they are looking at ways to preserve margins. One way to do this is merge and take the benefit of economies of scale. The deal would make a lot of sense,” he added.
Last month Unilever reported lower-than-expected fourth-quarter sales as a result of the Indian government’s withdrawal of high-value notes and a weak economy in Brazil.
Unilever has significant exposure to emerging markets and is in the process of revamping its structure to streamline costs.