Kraft Heinz Co is attempting to buy Unilever PLC in a US$143 billion deal that would join the US maker of cheeses and lunch meats with the European producer of mayonnaise, teas and seasonings in a global powerhouse.
Unilever rejected the approach and called the price too low, while Kraft Heinz said it is still interested in a deal.
Shares in both companies surged to new highs as investors saw prospects for cost cutting.
A combination of Kraft Heinz, which sells Oscar Mayer meats, Jell-O pudding and Velveeta cheese and Unilever, which owns brands including Hellmann’s, Lipton and Knorr, would rival Nestle SA as the world’s biggest packaged food maker by sales.
Companies such as Kraft Heinz — formed from two century-old businesses in 2015 — are trying to find new avenues for growth amid heightened competition.
Part of the challenge is the proliferation of smaller food-makers marketing more wholesome products, which makes it harder for the established companies to drive up sales simply by selling more of their well-known products or by raising prices, as they have in the past.
“That obviously has its limits,” said David Garfield, head of the consumer products unit at consulting firm AlixPartners.
Instead, companies are being forced to dig deeper to find cost efficiencies or tap into new markets, Garfield said.
That can include mergers that result in consolidated manufacturing systems, or that give companies access to distribution networks in regions of the world where they do not have a big presence.
They were among the reasons cited by executives in the Kraft Heinz tie up, which was engineered by Warren Buffett’s Berkshire Hathaway Inc and 3G Capital Partners LP, the Brazilian investment firm with a history of taking over companies and aggressively cutting costs.
Bernardo Hees, a 3G partner, has slashed jobs and pursued other savings, some of them granular, as chief executive officer of Kraft Heinz.
In a 2015 memo to employees, Hees reminded them to print on both sides of the paper, reuse office supplies such as binders and to turn off computers before leaving the office to cut down on energy costs.
The company also stopped stocking the corporate office with free Kraft snacks.
Unilever follows Nestle, PepsiCo Inc and Mondelez International Inc as the world’s biggest packaged food maker by retail sales, coming in ahead of Kraft Heinz, according to Euromonitor International.
In addition to its food products, it sells health and beauty products such as Axe body spray and Dove soap.
In the meantime, food and drinks companies such as Coca-Cola Co, General Mills Inc and Kellogg Co are also under pressure from Wall Street to slash costs and find products that suit the shifting customer preferences.
While mega-deals are tough to pull off, they have made an array of acquisitions of smaller, faster-growing brands.
Kraft Heinz shares closed up nearly 11 percent on Friday, while Unilever shares surged 14 percent.
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