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Buffett says no backup deal
for Kraft after Unilever snub
US food company Kraft Heinz
is not targeting any other
large deals for now after
being snubbed by Unilever
because valuations in the
sector are too high, major
shareholder Warren Buffett told CNBC news
"There isn't any back-up deal. That was
the only one that certainly I seriously thought
about that made sense," the billionaire investor
told the cable television network.
"Will there be another deal at Kraft Heinz
someday? My guess is yes, but who knows
when ... it would have to be friendly and frank-
ly, the prices in that field make it very, very,
very tough to make an intelligent deal," Buffett
said in a wide-ranging interview at a gathering
in his hometown of Omaha, Nebraska.
Buffett, chairman and chief executive of
Berkshire Hathaway , and private equity
firm 3G Capital together own 50.9 per cent
of Kraft. They built the company into the
world's fifth-largest food and drinks firm
through acquisitions and a relentless drive
to boost profits through aggressive cost cuts.
But with sales stagnating and margins flat-
tening, analysts and investors have been ex-
pecting another major deal to reignite growth,
though its choice of Anglo-Dutch consumer
goods firm Unilever came as a surprise.
Kraft Heinz withdrew its offer for Unile-
ver on Feb. 19, two days after it disclosed the
proposal following reports about an approach
for the maker of Dove soap and Ben & Jerry's
"When I was called by a representative of
Unilever on Saturday, I said 'if this is regard-
ed as hostile or unfriendly, you don't have
to worry about it, there isn't any offer'
said, stressing that Kraft never intended to
He said Alex Behring, managing partner of
3G Capital and Kraft chairman, met Unilever
Chief Executive Paul Polman in London on two
occasions and presented a letter outlining a
plan to create a global consumer goods giant
at the end of the second visit after interpreting
Polman's initial response as "neutral."
"Alex took it as a maybe and gave this letter
outlining a deal to Unilever," Buffett said in the
interview, noting that once he, Behring and
3G's co-founder Jorge Paulo Lemann learned
that it was regarded as unfriendly, we had no
intention of making one and I think the Uni-
lever people understand that now."
Unilever plc (UL) shares pared gains in
London after Warren Buffett told CNBC tel-
evision that there was no "back up deal" for
the consumer goods giant after the US$143
billion approach from Kraft Heinz Co KHC
was rejected earlier this month.
Speaking with CNBC's Becky Quick in
Omaha, Buffett said that Unilever was a "fine
company" and was "certainly attractive" on
a price basis before he and Alex Behring,
the co-founder and CEO of 3G capital, ap-
proached Unilever in early February. However,
Unilever's quick rejection of the bid---which
Buffett insisted wasn't hostile---convinced
him to look at other options.
"We don't do hostile offers," he said. "I don't
think they're morally wrong, and there are
some companies that certainly deserve hos-
tility, but Berkshire doesn't do it. Unilever is
a fine company."
"Unilever was the only one that I seriously
thought about that made sense," in terms of
value in the packaged food space.
"Will their be another deal for Kraft Heinz?
Maybe, but not anytime soon. There's no
Buffett said there might have been some
misinterpretation in the approach, owing to
cultural and linguistic differences.
"Alex's second language is English," he
said ---but nonetheless thought there would
be "more of a mating dance" between the three
Unilever shares, which had traded as high
as 3,845 pence each Monday, just three pence
from the all-time high they reached on Feb 17
when Kraft made its initial bid public, faded
to 3,811.5 pence shortly after Buffett's CNBC
Unilever to focus
on short-term value
Kraft Heinz's bid has jolted Unilever into
focusing more on delivering on its strategy in
the short-term, the Anglo-Dutch company's
finance chief said last week.
Graeme Pitkethly said Kraft's offer had
highlighted the importance of achieving a
balance between long-term sustainable val-
ue, which it had prioritised, and short-term
"This has certainly been a trigger moment
for Unilever, and we will not waste it," he said
at the Consumer Analyst Group of New York
conference in Boca Raton, Florida, in a pres-
entation streamed on its website.
The US company walked away from a fight
with Unilever on Sunday, just two days after
its US$143 billion bid---and Unilever's rejec-
tion---was made public.
Kraft, which is backed by Warren Buffett and
the private equity firm 3G, wanted to buy Uni-
lever as part of its strategy to become a leading
consumer goods giant by buying competitors
and cutting costs and jobs to drive profits.
The approach caused Unilever, which makes
OMO detergent and Magnum ice cream, to an-
nounce a far-reaching review on Wednesday,
seeking to show shareholders it could realise
the value spotted by its rival.
Pitkethly said he believed Unilever could do
more to communicate the value buried within
its existing plans, while the review would look
at options for the group's portfolio, organ-
isation, cost structures, balance sheet and
use of cash.
He said Kraft had taken advantage of a recent
widening gap between Unilever's share price
and the sector average, caused in part by a
weak outlook for markets like India and Brazil.
"The combination of being at the bottom of
the emerging market cycle combined with a
lack of volume growth in the fourth quarter led
to a very weak Unilever share price," he said.
"Add to this that we were at the bottom of
credit cycle and our own strong balance sheet,
and you have the opportunity for a leveraged
Unilever, which has struggled recently amid
slowing growth and currency fluctuations, saw
its shares tumble 4.5 per cent on Jan 26, its
worst day in nearly a year, when the company
reported lower-than-expected fourth-quar-
Kraft seized the opportunity to make an ap-
proach pitched at $50 a share, representing a
premium of 18 percent.
Pitkethly said for most of the last year, a
$50-a-share bid would have represented a
premium of about 10 percent.
Unilever's shares jumped to an all-time high
of 38.48 pounds when the approach was made
public, and they have retained most of that
gain, supported by Unilever's review and an
upgrade to its guidance.
Pitkethly said the bid "substantially under-
valued" Unilever, while Kraft's approach to
shareholder value was diametrically opposed
to its own.
While Unilever had an "inherently sustaina-
ble" model of looking to grow by compounding
returns and investment over the long term,
Kraft, he said, relied on leverage to generate
stronger short-term growth and earnings.
But without the foundation of strong or-
ganic growth, Kraft would be dependent on
further deals."It may be there was a strong
strategic rational for Kraft in combining with
Unilever, but there was no strategic rationale
for Unilever," he said.
Warren Buffett, left, joins
CNBC's Becky Quick for a
special edition of Squawk
Box at Nebraska
Furniture Mart, Monday,
Feb 27, 2017, in Omaha,
Nebraska. AP PHOTO
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