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President Trump is imploring American companies to invest in America. Warren Buffett, a big supporter of Hillary Clinton and perhaps the best-known American investor, last week made a surprise announcement to move billions of dollars abroad: Kraft Heinz KHC which is controlled by Buffett and Brazilian firm 3G Capital Partners, made a $143 billion bid for Anglo-Dutch global giant Unilever UN, UL, ULVR.
After the announcement, most analysts predicted the bid would eventually succeed and the share prices of both Kraft and Unilever would go much higher.
At The Arora Report, a significant amount of research is devoted to identifying buyout targets and helping investors profit from mergers and acquisitions. Naturally, Kraft’s bid for Unilever was of great interest to us. Our analysis indicated that analysts were right on the deal’s economics but had totally missed the politics. Did Buffett really want to become the target of Donald Trump’s tweets especially if the buyout process got ugly? After all, Trump has repeatedly said he has stopped eating Oreos after Nabisco moved a factory from Chicago to Mexico. Would British Prime Minister Theresa May stand by as thousands of jobs in the U.K. disappear? The U.K. has already been burned by Kraft’s promise not to cut jobs at Cadbury following that acquisition, only to see Somerset plant closed with loss of 400 jobs.
For these reasons, The Arora Report did not give signals on Kraft, Unilever or other stocks moving on the news.
Less than 48 hours after the audacious bid, the bid was withdrawn. In my opinion, the main reason, although unstated, is political blowback.
The business background behind Kraft’s bid for Unilever
Kraft is in the packaged-food business. Unilever is in the personal-goods and packaged-food business. To understand what pushed Kraft to make a bid, let us start with this annotated chart. ..Read more at MarketWatch
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