The Lemon Fool

"The Kraft Heinz Company ("Kraft") notes the recent speculation regarding a possible combination of Kraft and Unilever plc / Unilever NA ("Unilever"). Kraft confirms that it has made a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living. While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction. There can be no certainty that any further formal proposal will be made to the Board of Unilever or that an offer will be made at all or as to the terms of any transaction."

Full item here;

http://www.digitallook.com/cgi-bin/dlme ... d=25568239

ULVR up 5% as I type.

9.48% (darn it - no holding). But it's all about the Divi ....

They've declined the marriage proposal 12:19 LSE news.

monabri wrote:They've declined the marriage proposal 12:19 LSE news.

Yes, that was in the statement, but the rumour now is that Kraft is considering a takeover around £40 per share.

The interesting aspect of this particular news (from a HYP Practical perspective), is how many seasoned HYPers will actually sell on this news.

I am a committed LTBH HYPer (as those who have seen my posts will know), but even I am tempted by this situation.

The HYP argument of course is that the divi is unlikely to change and if Kraft do make a takeover, then the corporate action will take place whether we like it or not and we should see a good capital return.

The counter argument says why should we wait. we can bank the next three years dividend income just by selling today, and if the takeover does occur and it involved complex share swaps, we might end up with something that is not very tasty for a UK based HYP (a la Vodafone).

It might be interesting if someone ran a poll to see if there are many die-hard HYPers that intend to sell out over the next week or two.

This is the most excitement that my HYP has seen since International Power got taken out in 2009 (was it?).

Miner

ap8889 wrote:Would prefer to keep my Unilever shares. Offer 50 quid I maybe tempted.

Yes, quite so!

I bought a holding in 2014 @ 2491.3 and some more a few weeks ago at 3188.8. I'd rather keep them despite the potential for capital gains.

RC

Gah! Just starting to build HYP and what with SKY and ULVR, possibilities that more work required! Is this a common occurrence or is it more like the proverbial buses?

Cheers, OLTB.

I'm doing nothing. I'd be quite happy for this deal to not materialise, but if it does, I guess it's still possible that they might go down the merger route rather than takeover, and either way there is still a chance that a London listing will be maintained, so hanging on might be worthwhile. I don't want to have to go through the process of deciding what to do with the cash unless I have to.

StepOne

For those who've yet to see this elsewhere:

See also http://www.londonstockexchange.com/exch ... 31725.html

"The proposal received was that Unilever common shareholders would receive $50.00 per share in a mix of $30.23 per share in cash payable in U.S. dollars and 0.222 new enlarged entity shares per existing Unilever share, which valued Unilever at a total equity value of approximately $143 billion.

As at the close of business on 16 February 2017, a mix of $30.23 in cash payable in U.S. dollars and 0.222 Kraft Heinz shares per existing Unilever share would value each Unilever common share at $49.61, representing a premium of 18% to Unilever's share price."

Got an interest at both ends of this one, holding both ULVR and Berkshire H.(BerkB), a major shareholder in Kraft Heinz.

One thing for sure Warren B. , one of three Berk. H. appointees on that Board last time I looked, won't contemplate over paying if it comes to that and is bound to have a major say.

I suppose a merger would be nice, but I feel there would be massive regulatory hurdles to creating such a dominant giant in that business segment. Also it would not particularly bode well for divis imho.

So in the whole I would prefer status quo, getting a little fed up to see so many good'uns vanish from my portfolios, although profitable at the time I suppose, but not as much a potentially in the long run at times.

Ozyu

It will be complicated by the fact that Unilever has in effect dual nationality. I do not want any deal to go through and feel anything but excited by the news.

Unilever has been a good share for most of the last 20 odd years that I have held it; it pays a decent dividend and strangely enough I have a sense of national pride that we have at least one excellent international company which we should keep.

My fear is though that as Berkshire Hathaway has a 26.8% stake in Kraft Heinz, they have access to deep pockets. I hope they can do an AstraZeneca and rebuff the predator.

To answer miner, I at least would not dream of selling on the news. A one off capital gain is fine but I prefer a dependable well run company that will pay dividends more or less indefinitely.

Dod

Dod1010 wrote:It will be complicated by the fact that Unilever has in effect dual nationality. I do not want any deal to go through and feel anything but excited by the news.

Unilever has been a good share for most of the last 20 odd years that I have held it; it pays a decent dividend and strangely enough I have a sense of national pride that we have at least one excellent international company which we should keep.

My fear is though that as Berkshire Hathaway has a 26.8% stake in Kraft Heinz, they have access to deep pockets. I hope they can do an AstraZeneca and rebuff the predator.

To answer miner, I at least would not dream of selling on the news. A one off capital gain is fine but I prefer a dependable well run company that will pay dividends more or less indefinitely.

Dod

Ooh I was tempted to sell and buy a higher yielder until I read your post Dod, particularly your last sentence! I agree with you.

Back to sleep..........

Ian.

HYP mantra .."boring is good!"

alwright..good point, well made!

OZYU wrote:Got an interest at both ends of this one, holding both ULVR and Berkshire H.(BerkB), a major shareholder in Kraft Heinz.

One thing for sure Warren B. , one of three Berk. H. appointees on that Board last time I looked, won't contemplate over paying if it comes to that and is bound to have a major say.

Yes, it's hard to imagine that Kraft would try and pull this off without the support (and possible funding) of WB.

Now, WB likes boring businesses that throw off a lot of cash. On the other hand Unilver, like all consumer staples shares, is priced very richly by historic and relative standards. After the 2007-2009 debacle, the market has placed a premium on boring companies that sell things that everyone needs.

Proctor and Gamble has spiked up in the last couple of days as well. It's interesting how this sector, which has already seen a huge amount of consolidation, is still the subject of speculation as well. I own PG, Nestles and Unilever, as well as BRK, and so would welcome this deal around 50.

Three thoughts...

1. Unilever's been here before. It's an Anglo-Dutch company following the inter-war era merger of Margarine Unie of the Netherlands and Lever Bros. of the UK. It's bought (and sold) many other businesses and brands since. https://www.unilever.co.uk/about/who-we ... r-history/.

2. Astrazeneca shot up by £10 a share in 2014 (around 20%) on the approach by Pfizer, to the mid/high £40s range... and never came back down again. The market took that as its new fair valuation.

3. The post-Brexit referendum effect on foreign exchanges rates does mean UK exports are cheaper. That includes those overseas buyers snapping up UK companies. Doing a deal today is around 15% cheaper than a year ago, if you're carrying a wallet full of US dollars.

OLTB wrote:Gah! Just starting to build HYP and what with SKY and ULVR, possibilities that more work required! Is this a common occurrence or is it more like the proverbial buses?

The latter, if HYP1 is anything to go by - its takeover victims to date are:

2001: Blue Circle
2002-2005: none
2006: Associated British Ports
2007: Gallaher, Alliance Boots (*)
2008: Resolution (*), Scottish & Newcastle, Alliance & Leicester
2009-2016: none

(*) HYP1's Alliance Boots and Resolution holdings were effectively its original Boots and Britannic holdings renamed in the course of mergers.

Gengulphus

I'm not selling just yet.

If the deal goes ahead, I may sell rather than wait for the corporate action to pay out (I don't particularly want Kraft shares). In the meantime I'm hoping for an AZN type outcome, where the share price retains much of the takeover premium after Kraft are rebuffed. If they're not rebuffed I'd at least like to see a couple more increases in the offer (currently at $50 a share).

What surprised me when looking was that Kraft's shares have also risen, by just over 7.5% as I write. I'd have expected this bid to depress their stock, so I guess there's a lot of Kraft holders and analysts who think this is a steal.

VRD

Snorvey wrote:4. 'Corporate inversion' (perhaps)

For more than 30 years companies, especially American ones, have been merging with foreign firms or acquiring them outright in order to shift their tax bases abroad. It started in 1982, when McDermott, a construction company, outsmarted America’s Internal Revenue Service (the IRS) by moving its base from New Orleans to Panama, where it had a subsidiary. Ever since, this kind of move, called a “corporate inversion”, has been an attractive way for American companies with overseas earnings to reduce their tax bills.

http://www.economist.com/blogs/economis ... explains-9

Perhaps, although Trump is saying that he will lower US corporate tax rates, which are quite high by international standards, and allow tax-favoured repatriation of the large sums that US companies currently hold outside the US to avoid being taxed on them in the US.

So the factors that drive corporate inversions are potentially being reduced, although we'll see if Trump can get that through Congress.

There also may be some reluctance in the US to headquarter a pan-European company like Unilever in a post-Brexit UK, but I guess Holland is the obvious domicile for such an entity anyway.

JohnnyCyclops wrote:2. Astrazeneca shot up by £10 a share in 2014 (around 20%) on the approach by Pfizer, to the mid/high £40s range... and never came back down again. The market took that as its new fair valuation.

Inaccurate. Since the collapse of the takeover, I have twice bought at the £40 level. Late 2015 and late 2016. A profitable yo-yo for those prepared to tinker.

As I see it, the Pfizer approach has just increased the volatility of the share price.