Shares in consumer goods giant Kraft Heinz (KHC) edged higher today on reports that shareholders might not be ready to give up on a megamerger of its food brands with Unilever (UL) after initial discussions led to no agreement.
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Ketchup and Mayo
It was reported by the Financial Times that the two firms had discussed a potential combination of Unilever’s food brands, such as Marmite and Hellmann’s mayonnaise, with Kraft Heinz’s condiments business such as Heinz Ketchup in recent months. However, those talks have since ended.
If successful, it would have seen the brands come under the same ownership, creating a new entity worth tens of billions of dollars.
Both companies have been busy looking at the structure of their business in recent months. Kraft Heinz had been planning to split its company into separate businesses, with one global entity focusing on sauces, spreads, and seasonings, while the other would sell grocery staples in North America. Through this move, KHC aimed to create businesses that are more focused and less complex.
However, last month chief executive Steve Cahillane rowed back on the decision alongside a commitment to spend $600 million across marketing, sales and R&D.
New Twist to the Tale
Earlier this week, Unilever was reported to be in the early stages of considering a separation of its food assets and is speaking with advisers as it studies future options. That would have come in the wake of the demerger of the Magnum Ice Cream Company MICC -0.85% ▼ from Unilever back in December.
“Hot on the heels of demerger talk for Unilever’s food assets, there’s a new twist to the story. Reports suggests Unilever has held talks with Kraft Heinz to merge their food assets into a combined entity, creating a powerhouse for ketchup and mayonnaise,” said Dan Coatsworth, head of markets at AJ Bell. “Essentials in homes around the world, there is plenty of competition for these food items, yet Unilever and Kraft own the big brands. That makes the prospect of a merger more interesting.”
He said the brands stand to prosper in stronger economic conditions and could achieve economies of scale for purchasing raw materials and operational savings.
“Reports suggest talks are no longer live, but the idea of a combination has now been planted and that might prompt shareholders on both sides to push for more information on how a merger could work, and if it’s worth pursuing,” Coatsworth said.
Is KHC a Good Stock to Buy Now?
On TipRanks, KHC has a Moderate Sell consensus based on 9 Hold and 4 Sell ratings. Its highest price target is $26. KHC stock’s consensus price target is $23.38, implying a 5.36% upside.
