Kraft's Unilever Bid Could Cause Problems for Theresa May

  • Pound’s tumble since Brexit makes U.K. companies vulnerable
  • At stake are factory jobs in low-growth parts of the country

Unilever Spurns $143 Billion Kraft Heinz Offer

U.K. Prime Minister Theresa May couldn’t have known when she criticized Kraft Heinz Co. last July that the U.S. conglomerate would deliver one of the first -- and biggest -- tests of her industrial strategy.

While Kraft’s $143 billion offer for Unilever was spurned, sterling’s tumble since Britain voted to quit the European Union has made U.K. companies particularly tantalizing to overseas buyers. That is a problem for May, who promised in July to “give people more control of their lives” after voters bought the Brexit’s campaign’s pledge to “take back control.”

May singled out Kraft’s 2010 takeover of Cadbury Plc as an example of a deal that should have been blocked when she launched her leadership bid seven months ago. After the Americans bought the iconic British chocolate company, they reneged on a promise to keep a local plant open.

Unilever employs about 7,500 people in the U.K. and estimates its products are in 98 percent of the country’s households: Britons sip PG Tips tea while eating toast spread with Marmite. Teenagers munch Pot Noodles before applying Lynx deodorant or Brut after-shave in bathrooms cleaned with Domestos or Cif. It is a company where, in May’s words, “the whole country has a stake.”

Low-Hanging Fruit?

Vince Cable, who was Business Secretary in the coalition government alongside May until 2015, argued that the prime minister must make her opposition clear.

“This is an obvious case of a company being undervalued because of sterling’s devaluation since the Brexit referendum,” he said in a telephone interview. “Unilever is a very good company. There’s no question of under-performance or needing new management. The question is, what is the government going to do? They’re pulled hither and thither with Brexit stuff, but this is a very big test of her credibility.”

May’s office, contacted about its reaction to Kraft’s advances, declined to comment as did the government’s department of business.

Since the Brexit vote, bids for U.K. companies from overseas buyers are 26 percent higher than for the corresponding period in the previous year in value, according to Bloomberg data, including the Unilever approach. The largest bids before were 21st Century Fox’s 11.7 billion-pound ($14.5 billion) bid for Sky Plc and SoftBank Group Corp.’s acquisition of Britain’s ARM Holdings Plc for $32 billion.

“Sterling’s slump has left us in greater danger of losing control of some of Britain’s best and biggest companies to distant multinational ownership,” said the opposition Labour Party’s former business spokesman, Chuka Umunna, in an e-mailed statement.

Rebuff Tools

Cable said that while May has few tools to actually prevent a takeover, she can make one difficult. He tried this out in 2014 when Pfizer Inc bid for AstraZeneca Plc. “We didn’t have the legislative powers to block it,” he said. “We made use of the enhanced powers of the Takeover Panel. That gives you some kind of handle to set conditions.”

Those stipulations from government, combined with shareholder and management resistance, were enough to drive Pfizer away. “We shall find out if Kraft is made of sterner stuff,” Cable said.

When May spoke about Kraft last year, she was clear that takeovers should be judged on whether they benefited staff and customers as well as investors.

“Transient shareholders -- who are mostly companies investing other people’s money -- are not the only people with an interest when firms are sold or close,” she said.

Referring to AstraZeneca, she went on: “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.”

Unilever’s long history tracks the highs and lows of British manufacturing. Its corporate roots date back to Victorian England, when the industrial revolution took off, with William Hesketh Lever jotting down his ideas for a soap.

Today it has about nine factories in England, many in pockets of high unemployment and low economic growth where blue-collar workers are facing a shrinking job market. In at least five factory locations -- from Warrington, Cheshire to Burton-on-Trent, Staffordshire -- voters went for Brexit in June’s referendum.

Those are the voters that May has pledged to defend. And if Kraft offers the first test, it won’t be the last.

— With assistance by Andre Tartar, and Alex Morales

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