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SME lessons from botched Unilever takeover by Kraft Heinz

The world of mergers and acquisitions can often be a murky one, so what can SMEs learn from the failled attempt by Kraft Heinz to snap up Unilever?
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Negotiating deals like the recent one involving Kraft Heinz and Unilever requires a strategic and balanced approach. Discussions at the outset can greatly shape the tone of the deal and it’s important to start as you mean to go on.

News of the Kraft Heinz proposed bid to take over Unilever came as much of a surprise as when the deal was shelved the very next day. But a bigger surprise lay in the facts surrounding the deal and the way in which the negotiations had been handled. Despite this deal being valued in the hundreds of billions of pounds, SMEs can learn lessons from the details that have emerged.

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Companies are merging in increased numbers. This route can help market access and help establish a greater brand presence. Many deals are borne in the privacy of a phone call or a meeting. But the steps that follow are important.

Heads of terms relating to the proposed sale are commonplace, outlining the terms of the deal and the structure to follow. Usually entered into before due diligence and the main transaction documents, it is important to note that this document is not usually considered intended to be legally binding – although certain provisions such as costs, confidentiality, exclusivity and governing law are likely to be.

It is not known whether the Kraft Heinz takeover of Unilever ever got to the point of heads of terms, or whether any due diligence was undertaken, but it is clear that the discussions between the parties was enough to allow the parties, or at least one of them, to form a conclusion about the way forward – in this case, to a stop.

Confidentiality in deals is paramount, and it is clear that whilst this was a friendly deal, Unilever’s stakeholders did not wish to pursue the transaction. It is not known how the interest of Kraft Heinz became public, but a spokesman for the company did comment that interest was made public at an early stage.

Shareholders are the owners of the business. Most company constitutional documents will require shareholders to be consulted on all matters of importance, including a proposed purchase or a takeover. Getting shareholders onside will need a considered approach and an understanding of the pros and cons of the deal.

Reports suggest that after promising to keep open Cadbury’s Somerdale factory, Kraft Heinz turned round and said the factory would be closing. Changing the terms of a deal is often not looked upon favourably, especially by shareholders. Factory closures risk employees and mean considerations around corporate social responsibility and the environment, hot topics when considering a takeover.

A key factor in mergers involving foreign takeovers is the cultural issues and how to merge different cultures so that operating and business decisions can be seamlessly made despite cultural differences. Culture is resilient and those immersed in a culture may not even realise the power their culture has over them. But it is for the team behind a proposed merger to consider this factor, alongside many others, to understand what impact culture may have on the takeover. Decision-making and leadership styles may vary greatly and these are crucial to a business.

Some reports suggest that foreign takeovers of UK companies has fallen since the recent Brexit vote, as this has created a degree of uncertainty in the pound and the stability of the economy. Whether the recent Budget announcements have served to alleviate these concerns, is yet to be seen.

Vanessa Crawley is a solicitor in the corporate team at SA Law.

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