JUST how big can a conglomerate get? 3G, a Brazilian private-equity firm, has made a speciality of gobbling giant consumer companies. Recent victims include Heinz, a 148-year-old firm acquired with Warren Buffett’s Berkshire Hathaway in 2013, then Kraft, another American food giant that it combined with Heinz in 2015, as well as Anheuser-Busch, an American brewer it merged with InBev, which last year swallowed SABMiller. Now Kraft Heinz has bid $143bn for Unilever, a giant maker of consumer products. But 3G at last may have bitten off more than it can chew.
Big consumer companies have looked vulnerable of late. Consumers increasingly favour products with supposedly healthier or more natural ingredients. Small firms have risen to meet that demand, encouraged by the ease of distributing and marketing goods online. Large consumer companies lost nearly three percentage points of market share from 2011 to 2015, according to a study by the Boston Consulting Group and IRI, a consultancy and data provider, respectively. In America “craft” brewers saw volume jump by 13% in 2015, even as total beer sales were flat.
Large companies have struggled to catch up. Today General Mills and J.M. Smucker, two American food manufacturers, lowered their estimates for future sales. Nestlé, the world’s largest food manufacturer, is making the industry’s boldest bid for growth, investing to make its products healthier and researching foods with clinical benefits. But yesterday the company admitted that its longtime target of growing by 5-6% each year was too ambitious—it has missed that goal for four years running.
3G offers a specific antidote to these woes. The first step is to make big firms even bigger. The new ABInBev sells roughly one in three pints of beer swilled around the world. The second step is to slash costs. 3G’s preferred method of cuts, called zero-based budgeting, forces managers to justify expenses from scratch each year. Heinz’s profit margin widened from 18% to 28% in just two years, according to Sanford C. Bernstein, a research firm.
There is intense debate over whether such cuts squander any chance for growth, or whether these firms have little chance of growing anyway—they might as well be squeezed for profits until another deal can be made, when the profit squeezing can begin once more. Investors have been itching for Kraft Heinz to make its next bid, with many suspecting that its target might be Mondelez, an American snack company that split from Kraft in 2012. On February 15th Kraft Heinz announced mixed results, with fewer savings than some investors hoped. Reports that the company might delay a merger helped push down the share price by 4% on February 16th.
But it seems Kraft Heinz had its eye on a target more than twice Mondelez’s size. The combined Kraft Heinz and Unilever would not pose a particular threat to competition. Kraft Heinz earns 61% of revenue in America; Unilever earns 85% outside it. However it is unclear the deal will go through.
To start, Unilever has firmly rejected the idea. Kraft Heinz is also 24% smaller than Unilever and already laden with debt, so may not be able to muster a much larger bid. Add to this, the Dutch and British governments view Unilever as a corporate treasure. Kraft’s takeover of Cadbury’s in 2010 helped spur Britain to tighten its takeover rules. (Mondelez got Cadbury when the companies split in 2012.) It is likely that Britain will take a harsh view of Kraft Heinz’s latest attack, especially given that Kraft announced it would close a certain Cadbury factory shortly after saying it intended to keep it open. Nevertheless, recent history suggests it is a mistake to underestimate 3G. Under British rules Kraft Heinz has until March 17th to make a formal offer.
De Britse en Nederlandse overheden gaan het denk ik niet toelaten. Voor Nederland is het slecht.