Click the image for details Kraft Heinz Initiates Acquisition of Unilever Late last night Beijing time, the American food giant Kraft Heinz issued a statement as follows: Kraft Heinz noted recent rumors about a potential merger between Kraft and Unilever. Kraft confirmed that it made a comprehensive proposal to Unilever to merge the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living. Although Unilever has rejected the proposal, we still hope to work together to reach an agreement on the transaction. There is no guarantee that a further formal proposal will be made to Unilever's board, nor that any transaction agreement will be reached. Why did Kraft Heinz issue this statement? The statement said: "Kraft Heinz noted recent rumors about a potential merger between Kraft and Unilever." So, where did the rumors mentioned in the statement come from? It is understood that the news originally came from a blog on the Financial Times website. In the blog, a blogger said that "Kraft Heinz is interested in Unilever" and that the acquisition price was 40 pounds per share, with 3G and Buffett raising funds for it. At the same time, we can also learn from the above statement that Unilever rejected Kraft Heinz's proposal, but stimulated by the news, Unilever's share price has risen to a record high, first jumping from 33.60 pounds to 37 pounds, an increase of 11%, and now it has risen more than 14%. As a result, Unilever's market value exceeded 100 billion pounds. The statement caused an uproar in the industry. One is already the world's fifth-largest food company, and the other is a British-Dutch food and daily chemical giant. If the two merge, the global FMCG landscape would indeed be rewritten. How did Unilever respond? Unilever said it had noted the statement made by Kraft Heinz, and that its offer represented an 18% premium to Unilever's closing price on February 16, 2017, which completely undervalued Unilever, and Unilever saw no basis for further negotiation. The company advised shareholders to take no action and said it would make a further statement when appropriate. Notably, according to details provided by Unilever, Kraft Heinz's offer was $50 per share, valuing Unilever at $143 billion. Unilever produces and sells more than 1,000 brands globally. Unilever has significant operations in China, and its brands operating in China are shown in the figure below, including food brands such as Lipton, Knorr, and Wall's, while others are mostly daily chemical brands. If this acquisition were to succeed, it would become the largest acquisition in the history of the food and beverage industry. Last Year, Kraft Heinz Was Reported to Acquire Mondelez In 2013, 3G Capital and Warren Buffett's Berkshire Hathaway jointly acquired Heinz for $23.2 billion; in 2015, Heinz announced a merger with Kraft Foods, creating a new company with a market value of over $40 billion, making it the world's fourth-largest food company. In December 2016, a Swiss economic magazine called Bilanz suddenly published a report on its website that 3G Capital's founders and Buffett were seeking to acquire Mondelez International, citing "people familiar with the matter" saying the acquisition would be conducted through Kraft Heinz. At that time, Mondelez's stock suddenly surged, at one point rising more than 10%. However, affected by the current news, investors believe Kraft Heinz is not interested in pursuing Mondelez, and the latter's pre-market stock price is currently falling, down more than 5%. Let's wait and see how things develop. Durex Acquires Mead Johnson On February 10, Mead Johnson announced that its board unanimously approved an agreement with Reckitt Benckiser, the parent company of Durex, to acquire Mead Johnson for a total of approximately $17.9 billion, or $90 per share. The transaction still requires approval from shareholders of Mead Johnson and Reckitt Benckiser and relevant regulatory bodies, and is expected to be completed in the third quarter of 2017. According to data, the acquisition values Mead Johnson at $16.6 billion, and including Mead Johnson's net debt, the total transaction value is $17.9 billion, which is $200 million higher than the initial offer. Regarding the significance of the acquisition, Mead Johnson CEO Kasper Jakobsen said the merger would help both parties expand scale and achieve diversified operations. The merger would give Mead Johnson employees a larger platform to discover new opportunities. Mead Johnson's Senior Vice President and President of Greater China, You Peiyu, said the Chinese dairy market has huge potential, and the merger would allow both parties to leverage synergies in multiple aspects, through resource integration and regional complementarity, enabling key markets including China to grow faster and better serve global families and infants. Reckitt Benckiser CEO Rakesh Kapoor said Mead Johnson's global footprint would significantly enhance Reckitt Benckiser's presence in developing markets, and after the merger, China would become the company's second-largest "supermarket." Behind the Cross-Border Acquisition On February 1, the Wall Street Journal first reported that Reckitt Benckiser was in talks to acquire Mead Johnson. Reckitt Benckiser was preparing to acquire the milk powder giant for a total consideration of approximately $16.7 billion. Subsequently, both parties confirmed they were in talks, but did not guarantee a final agreement. By February 10, both parties formally announced that Reckitt Benckiser would acquire Mead Johnson. It is understood that the acquisition still requires shareholder and regulatory approval and is expected to be completed in the third quarter of 2017. Reckitt Benckiser is one of the world's largest household cleaning products companies, with over 100 brands, including star brands such as Durex and Dettol. It has significant influence in the global daily chemical industry, and its current market value is $56 billion. Despite being a daily chemical giant, Reckitt Benckiser has not fared well in China. In October 2016, Reckitt Benckiser (China) Co., Ltd. was reported to have layoffs, concentrated in loss-making departments such as hygiene care. Since entering the Chinese market, Reckitt Benckiser has sought to differentiate itself from daily chemical giants like Procter & Gamble and Unilever in the mainland, and its strategic focus has shifted from daily chemicals to condom products led by Durex and pharmaceutical business. In 2013, Reckitt Benckiser fully acquired the Chinese traditional medicine company Anhui Guilong Pharmaceutical, whose star product "Manyan Shuning" is well-known in China. In 2015, Reckitt Benckiser began to focus on health care business, vigorously promoting the dietary supplement brand Schiff. Bai Yunhu, an expert in the daily chemical industry, believes that in recent years, Reckitt Benckiser's diversified development in the mainland has not been ideal, and Durex has become the main pillar of its mainland business. As Durex's development in the mainland market has hit a ceiling, Reckitt Benckiser is also seeking new growth points in the broader health sector. In acquiring Mead Johnson, Reckitt Benckiser values its main channel of mother-and-baby stores. The implementation of the two-child policy has created a large market space for mother-and-baby products, including maternal and infant care products and infant supplies. Reckitt Benckiser's acquisition is more about finding new growth avenues for its broader health strategy. The mother-and-baby industry is precisely related to its main business. For example, baby bottle nipples are rubber products similar to its Durex products, and there are many correlations in the development of mother-and-baby products, which is an important reason they reached a consensus. Wyeth and Dumex have also experienced acquisitions before. After Wyeth Nutrition was spun off from Pfizer and sold to Nestlé, it thrived in China and continued to lead the Chinese infant formula market. Dumex, after an incident, had its China business fully acquired by Yashili. Dairy analyst Song Liang also believes that according to Mead Johnson's financial reports, its Asian business accounts for nearly half of its sales. Reckitt Benckiser's motivation for the acquisition is to achieve further growth in the Asia-Pacific market, especially in mother-and-baby food and care products. For Reckitt Benckiser, which focuses on health industry development, mother-and-baby has significant growth potential in the health industry. The reporter noted that at the end of January 2017, foreign media reported that Nestlé had intentions to acquire Mead Johnson. Previously, in 2012, Nestlé spent 11.85 billion yuan to acquire Wyeth Nutrition, becoming the world's largest infant nutrition producer. However, neither Nestlé nor Mead Johnson responded to the rumor. Song Liang analyzed that the reason Mead Johnson ultimately chose to sit at the negotiating table with Reckitt Benckiser is mainly because Reckitt Benckiser had never been involved in any mother-and-baby business. Because it is a cross-border acquisition, there is no industry consolidation issue. After the acquisition, Reckitt Benckiser can maximize the protection of the interests of all parties in Mead Johnson and maintain the relative independence of the Mead Johnson brand and its personnel and finance. Ensuring Mead Johnson's independence in all aspects after the acquisition is one of the important reasons why Mead Johnson's previous contacts with Nestlé and Danone did not yield results. Is Being Acquired a Last Resort? In 2016, Mead Johnson itself was actively exploring and adjusting its layout in the domestic market. In the first half of 2016, it took the lead in launching the high-end product "Blue Zhen" in China. In the second half of the year, affected by the new milk powder policy, it terminated the agreement with Murray Goulburn to build a factory. But a series of measures indicate that the domestic market has become a significant business region for Mead Johnson. Mead Johnson was once a leader in infant formula in the Chinese market, but in recent years, due to various factors, its industry status and market share have been overtaken by Wyeth and Danone. According to Euromonitor data, in the 2016 Chinese infant formula market, Mead Johnson ranked third, behind Wyeth and Danone. Dairy expert Wang Dingmian believes that Mead Johnson's decision to seek a "new owner" may have been considered by senior management for a long time. Taking the termination of cooperation with Murray Goulburn as an example, the originally planned factory was to be completed and put into production in 2019. Attributing the main reason to the new milk powder policy is far-fetched. Mead Johnson stated that the termination was due to multiple factors, which may include considerations of future acquisition. According to Mead Johnson's 2016 results, net sales in Asia accounted for 50%, down 9% year-on-year from 2015, affected by a 5% decline in the US dollar. However, the report specifically noted that the decline in Asian sales was mainly due to negative foreign exchange effects, particularly in China. At constant exchange rates, total sales volume did not fluctuate significantly from the previous year, and it pointed out that growth in mainland China was driven by new products. At the subsequent earnings meeting, Mead Johnson CEO Kasper Jakobsen said that mother-and-baby stores became Mead Johnson's largest sales channel in 2016, currently accounting for about half of Mead Johnson's sales in the mainland market. As of the second half of 2016, products launched in the past two years accounted for nearly 60% of Mead Johnson's mainland sales, which was achieved in a relatively short period. However, the company did not disclose total sales for China, but he noted that last year recorded double-digit growth compared to 2015. He also specifically pointed out the reshaping of product structure and consumer base in the mainland market. Public data shows that in 2013, Mead Johnson's sales in China reached 7 billion yuan. However, starting from the anti-corruption investigation that year, Mead Johnson's performance in China began to decline year by year. In terms of products, Wyeth, which took the lead in high-end formula, confirmed the huge potential of high-end formula in China and successively launched a series of high-end products such as pregnant women's formula. Compared with Wyeth's development speed, Mead Johnson is inevitably seen as slow to react. In July 2015, the U.S. Securities and Exchange Commission announced that Mead Johnson would pay $12.03 million to settle civil charges related to bribery in China, violating the U.S. Foreign Corrupt Practices Act. For Mead Johnson, which has been rumored to be acquired since 2015, Song Liang believes that acknowledging acquisition talks at this point cannot be simply attributed to poor performance in recent years leading to acquisition. Although domestic policies have raised the threshold for formula, the infant and young child market remains the fastest-growing food category in China and Asia. In the future, whether the two parties' union can create more exclusive products in the mother-and-baby industry will be an important part of their technical cooperation. This article is compiled and edited by New Distribution -END-