Billionaire Jorge Paulo Lemann (77), who scores on rank 19 of Forbes’ list of the richest people on earth and his partner, Warren Buffett (86), third richest man on the planet, have failed in their attempt to take over Anglo-Dutch food giant Unilever.
The two investors plan to consolidate the worldwide industry of processed foods just the same way Lemann did it with the beer industry in recent years. Lemann and his investment firm 3G Capital have been the driving force for more than 25 years in the formation of the world’s largest beer company AB InBev.
In 2013 3G Capital and Buffett’s investment company Berkshire Hathaway purchased American food processing company H. J. Heinz Company (Heinz Ketchup) which they merged in 2015 with Kraft Foods Group to form the fifth-largest food and beverage company in the world, Kraft Heinz Company.
Last Friday it became known that Kraft Heinz submitted an offer to take over multinational consumer goods company Unilever co-headquartered in Rotterdam, Netherlands, and London, United Kingdom. The $143bn cash-and-stock offer, which would have been the second-largest takeover in history, valued the company 18% higher than its stock value on Friday.
On Sunday Kraft Heinz unexpectedly withdrew its bid. The company said, its “interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction.”
Observers see the very different business culture of both companies and the adverse political situation, especially in the UK after the Brexit as the main reason for the failure.
3G Capital is known for its “ruthless cost-cutting”, as former Nestlé chairman, Peter Brabeck-Letmathe, described it. The company demonstrated its aggressive management style already in the takeover of American brewing icon Anheuser Busch and later in the merger of HJ Heinz and Kraft Foods. The target-driven approach (fat management bonuses for short-term results), which is mainly based on cost cutting, and zero-based budgeting (justification of each expense for annual budgets) are also criticized by experts like consulting firm McKinsey.
As seen by the experts, a business policy like exercised by 3G Capital, results in short term profits but destroys brands and companies in the long run. In order to grow, the companies need even bigger and aggressive takeovers every few years, as could be seen by the recent incorporation of the world’s second largest brewer SAB Miller by its rival AB InBev.
Nevertheless, it seems clear to everybody familiar with the matter that Lemann will not rest until he has achieved his goal to form the world’s largest company for processed food. Since his early time, when Lemann was Brazilian tennis and surf champion, he never accepted to lose a battle. He kept on and kept on until he was at the top. With 3G Capital he has now up to $15bn on hands for his next mega deal.
After Unilever he could now target Mondelez International, as already speculated earlier. And in the long run, also market leader Nestlé might be a perfect prey for Lemann, because brand driven companies have a lot of cost cutting possibilities.