Management Lessons from the Collapsed Kraft Heinz-Unilever Takeover
21 March 2017 -
Poised to be one of the world’s biggest corporate takeovers ever, the collapse of Kraft Heinz’s short-lived bid to purchase Unilever last month revealed a series of management insights for all executives and bosses to learn from
In February, this year, consumer goods giant Kraft Heinz Co. withdrew its £117bn offer for rival Unilever PLC, just a little more than 48 hours after making public an audacious bid to combine the two corporations.
At an initial glance, the trans-Atlantic uniting of the owner of household brand names such as Ben & Jerry's ice cream, and Hellmann's mayonnaise, with the owner of the likes of Philadelphia cheese and Heinz baked beans seemed a match made in heaven, and a potentially formidable force.
But after Unilever made clear it was intent on rejecting any attempts at a takeover, Kraft pulled out, stating, “it was best to step away early so both companies can focus on their own independent plans to generate value”, the Kraft spokesman said.
Clash of management cultures
While their balance sheets suggested an ideal marriage, the often overlooked difference in management strategy and corporate culture was a major breaking point for Kraft’s bid to succeed. Whether you are the buying company, or the vendor, senior managers and executives should consider how the different workplace cultures will work together post-merger.
On one hand, Kraft Heinz is jointly controlled by billionaire investor Warren Buffett and Brazilian private equity group 3G, with the latter earning a reputation for cost-cutting. In some of its business in the consumer industry to date, 3G has aimed to boost profits quickly by slashing costs, cutting jobs and raising profit margins. This is an approach that often attracts short-term investors looking for value in a typically slower growth sector. Since Mr Buffett and 3G purchased HJ Heinz and merged it with Kraft Foods in 2015, more than 13,000 workers have lost their jobs.
However, this austere approach has drawn criticism from long term investors and rival business leaders for stifling the long-term growth of businesses and their workforce. They would instead prefer a more sustainable strategy, as shown by Unliever and its chief executive Paul Polman, which has invested heavily in corporate social responsibility and the environment, particularly regarding its supply chains in the developing world, even if it lowers profits.
Polman took to the stage in Davos to call for business leaders to “unstereotype the workplace” and Unilever has a 36-strong European Works Council which has a requirement to be kept informed on the intricacies of a potential takeover.
Uniting the practices and structure of similar companies is difficult enough, but to do so with widely polarised corporations with contrasting ideas on how business should be operated made the takeover unlikely from the outset.
Strike The Balance Between Short and Long Term Goals
Unilever’s long-term approach for sustainable growth has been much admired, but the Kraft bid has shaken up bosses to remember that providing some short-term value to investors is also important in maintaining confidence in the corporation.
For senior executives and managers the pressure is always present to boost profits and revenues now, and also invest and adapt your business for the future. The Unilever-Kraft scenario further highlights these difficulties, as it showed a failure to give investors greater returns could see them tempted to entertain offers from potential takeover suitors.
Re-assessing its profitability and structure, Unilever has promised to boost profits and conduct a root-and-branch review of its business, which could be completed in April. Unilever conceded that the returns it has been promising in a three-year plan unveiled last year — including $1bn of savings — needed to be delivered more rapidly to shareholders.
A second statement by the conglomerate also said Unilever would boost operating profit margins to meet “the upper end of its 40-80 basis points guidance,” as opposed to the lower end previously predicted. Analysts say Unilever may now be spurred on to sell off its underperforming foods and refreshments businesses, such as Flora margarine, and look for other acquisitions in more profitable sectors, including personal care.
However, investment analyst Jack Nelson, at asset management firm Stewart Investors, says the corporation must not lose sight of the significant strides Unilever has made in the past decade to secure its long-term future as an industry leader.
“The cacophony of voices from “the market” seeking to pressure Unilever’s management into action seems premised on the misplaced notion that the company has been underachieving,” Nelson said. “In reality, Unilever has been particularly successful at striking the right balance between present and future needs and ambitions. This has enabled the company to deliver not only for its shareholders but also on its broader social purpose.
“Investors in Unilever’s London-listed shares have been rewarded with a return of just under 13% a year over the past decade, versus a little over 5% a year in the FTSE 100. Sustained for 10 years, this has meant a 230% return versus 66% for the index. This is a company that has delivered handsomely for its shareholders.”
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