US food giant Kraft Heinz Co. (NASDAQ:KHC) has walked away from its $143bn merger with Unilever plc (LON:ULVR) just two days after the proposed deal was leaked.
Unilever, owner of Dove soap and Lipton tea, had rejected Kraft’s bid on Friday, saying it saw “no merit, either financial or strategic”.
Kraft was expected to return with a higher offer but the companies announced on Sunday the proposed deal had been binned.
Kraft decided withdraw its offer as it believed it was too difficult to negotiate following the public disclosure of its bid so soon after its approach to Unilever, Reuters reported, citing people familiar with the situation.
It is understood the resistance from Unilever was unexpected by Kraft but key concerns during the talks had included differences between corporate culture and potential UK government scrutiny. UK Prime Minister Theresa May had reportedly requested an examination of the deal before it was thrown out.
“Kraft Heinz’s interest was made public at an extremely early stage," Kraft Heinz spokesman Michael Mullen said in a statement.
"Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”
Kraft was forced to reveal the details of its bid to the public on Friday to comply with Britain’s takeover rules after stock traders caught wind of the proposed merger.
The public withdrawal of its offer means Kraft will be unable to approach Unilever again for another six months, according to UK takeover rules.
It would have marked the second biggest takeover in corporate history after Vodafone's $203bn acquistion of Mannesmann in 2000 and the largest acquisition of a UK-based company.
Jefferies said in a note to investors: "We expect Unilever's shares to revert to something closer to where they were on Thursday. But we expect the seismic shock to reverberate for a while yet: not least in terms of what it means for value perceptions of Unilever and whether Kraft Heinz might yet offer a welcome home for some or all of Unilever's foods assets."
Exane BNP Paribas said Unilever has ultimately rejected a deal which could have been "compelling". The bank added that is is unlikely to be back to business as usual at Unilever and suggested a potential merger of the company with Colgate as another option.
"Given the trajectory of Kraft Heinz shares on Friday, Unilever effectively rejected a 23% premium and likely considerably more given what we suspect would have been the likely future trajectory of Kraft Heinz shares. Our combined entity valuation, pointed to a premium of 29% (before any increment in deal terms)," Exane said.
The broker left its rating on Unilever at 'buy' and target price at 3,700p.
Shares in Unilever dropped 6.90% to 3,536.50p in early trading.
-- Adds broker notes, updates share price --