Kraft’s dropped Unilever bid extends run of failed mega-deals

By Reuters

  • 21 Feb 2017

Kraft Heinz's dropped bid to buy Unilever is the third-largest M&A deal to collapse, according to Thomson Reuters data, adding to a recent run of failures that highlights the appetite for the pursuit of audacious mega-mergers.

The abrupt U-turn by U.S. foods giant Kraft at the weekend pushed the value of deals withdrawn this year to $205.2 billion, compared with $53.6 billion at the same point in 2016.

The effect of proposed big deals on those numbers is clear, with the 87 deals to have collapsed this year significantly lower than the 111 that fell through in the corresponding period last year.

The value of failed deals is likely to continue, bankers say, with companies still likely to seek ambitious acquisitions.

"There has been no punishment by the market or investors if a deal does not close. The overall context has been shareholder support for trying to get deals done and that has been an engine of growth in the M&A market," said Severin Brizay, head of M&A for Europe, Middle East and Africa at Swiss bank UBS.

Kraft had pursued Unilever as part of its strategy to become a global consumer goods giant, but it received a hostile reception from the Anglo-Dutch company and cited a lack of "strategic" merit for its withdrawal from a deal that would have had a value of $162.2 billion based on the offer price plus Unilever's debt.

Yet the complexity of such huge deals can throw up multiple obstacles.

The biggest withdrawn deal came last April when U.S. drugmaker Pfizer's (PFE.N) attempt to buy Ireland-based Allergan for $160 billion floundered on the introduction of U.S. Treasury rules to curb tax-cutting inversion deals.

Honeywell International's attempt to buy United Technologies for $90.7 billion ended in failure last February after United Tech rejected the deal on expectations that it would be blocked by antitrust regulators.

Those helped to lift the value of withdrawn deals last year to an eight-year high, with transactions worth $808 billion withdrawn or rejected, compared with $538 billion in 2015.

Another to fall by the wayside on competition concerns was the proposed $6.3 billion merger of office supply chain Staples with smaller rival Office Depot.

"When you are No.1 and No.2 in your sector it's difficult for the regulator to approve," said Raj Karia, of global corporate and financial law firm Norton Rose Fulbright.

Thomson Reuters classifies a deal as withdrawn if there is a public announcement by the buyer that the offer is withdrawn or financial and legal advisers agree that it has been withdrawn.

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