In 2015, Kraft Foods bought Heinz (as in the ketchup and condiments company) for $40 billion. This created Kraft Heinz, a multi-billion-dollar international food empire that made company executives happy and investors happier.
Yet Kraft isn’t one to make a big acquisition and call it a day. The company now wants to purchase Unilever, a European consumer products company that makes Ben & Jerry’s and soap. More importantly, they’re willing to pay $143 billion to buy them and more or less become the world’s largest food company.
But why does Kraft want to spend so much money for Unilever, and what obstacles do they have that might prevent them from doing so?
Kraft Heinz is one of the biggest food companies in the world, with a market cap of $122.72 billion.
The stock ($KHC), a direct result of the company’s acquisition of Heinz, performed well since both companies became one. They’re currently up 34.39% in the last year, or 25% higher after both companies combined.
Unilever has a market cap of $145.92 billion.
The London-based company ($ADR) has gone up by nearly 15% in the last year, while making decent gains in the last five years. They’re not just a food company, however. Unilever makes everything from beverages to cleaning products and personal hygiene items, too. Chances are you have at least several of their products in your home right now.
Kraft Heinz’s proposed purchase of Unilever would turn them into more than just a food company.
By purchasing Unilever, Kraft Heinz would diversify their product offerings and enter the personal care and cleaning products business, too. They would also stop stepping on each other’s toes and lessen competition, while being able to simultaneously merge departments and cut down on unnecessary positions in the proposed new company.
The news of this possible acquisition made investors of both companies quite happy.
Unilever’s stock is up 15.29% after the announcement, while Kraft Heinz’s stock is up 10.74%. If Kraft Heinz buys Unilever, Unilever shareholders would likely receive money and/or stock in the new Kraft Heinz/Unilever company, likely at a higher price than it is currently. Like any time an acquisition is proposed or announced and investors are positive about it, investor demand increases, thus increasing share price.
What stands in the way of Kraft Heinz’s acquisition? Both companies are among the biggest in their fields, which means the acquisition would come under government and regulatory scrutiny. There’s a chance that the U.S. and U.K. would not approve of the acquisition due to decreased competition and other factors. Yet if the acquisition does go through — if it goes any further, that is, we’ll have a brand-new consumer products giant to talk about and invest in. If it doesn’t go through, both companies will still do fine on their own.