Kraft Heinz announced on Friday a proposed $143 billion merger with Unilever in what would be one of the biggest deals ever.
But the Anglo-Dutch consumer goods giant has declined, saying in a statement the offer "fundamentally undervalues" the company.
"Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever's shareholders. Unilever does not see the basis for any further discussions," the statement said.
Nevertheless, Unilever shares soared more than 9 percent Friday.
Sources told CNBC, however, that it would be unlikely for Kraft Heinz to pursue a deal, if Unilever's board rejects the offer by March 17.
"While Unilever has declined the proposal, we look forward to working to reach agreement on the terms of a transaction," Kraft said in a statement. "[But] 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."
Kraft is backed by Brazilian private equity firm 3G Capital and Warren Buffett. Two years ago, H.J. Heinz, owned by Buffett's Berkshire Hathaway and 3G, announced a $45 billion takeover of Kraft Foods.
A Kraft deal with Unilever would add Hellmann's mayonnaise, Ben & Jerry's ice cream and Knorr soups to a portfolio that includes Heinz ketchup and Kraft Macaroni & Cheese.
In its statement, Unilever said the deal put an 18 percent premium on Unilever's share price, the main area where the company claimed it was undervalued.
The premium would essentially become a food multiple for Unilever shareholders. On paper, the company looks more like a packaged goods distributor than a food producer, with only roughly 38 percent of Unilever's EBITDA, or earnings before interest, tax, depreciation and amortization, coming from its food products.
Pablo Zuanic, senior equity analyst at Susquehanna International Group, said that if the deal goes through, Unilever may have to spin off its household products business, which includes brands like Dove and Axe, to make it worthwhile.
"We expect them to divest or sell the household personal care business, otherwise the deal is not doable based on the math," Zuanic said on Friday. "Even with 25 percent equity, you have to divest the HPC business to end up north of five times net EBITDA."
"Kraft Heinz ... their focus is to be a global powerhouse in food and beverage, not [in] HPC, so ... Unilever, on the food, which is what they will keep, is aligned with a global strategy," he continued.
On Friday, Consumer Edge Research's Jonathan Feeney said that Kraft's posturing is a traditional response to initial merger disagreements.
"It certainly sounds like a typical opening salvo of a merger approach," the consumer staples analyst told CNBC's "Squawk Box." "It's hard to tell at this point what's actually friendly and unfriendly. Often times it's standard procedure."
But the deal would undoubtedly be a key strategic play for Kraft Heinz because it would broaden the company's international scope, he said.
"What this does is a lot more than just margin opportunity," he said. "You get Kraft Heinz into long-term growth opportunities structurally in developing markets that are very, very attractive."
"The real structural growth opportunity is building those adoption rates of high-margin products all around the world," he continued. "I think that's what this transaction signals."
Zuanic, who appeared on CNBC's "Squawk on the Street," said that in addition to the deal giving Kraft more global exposure, political uncertainty in the United States temporarily rules out American deal contenders.
"We have lowered the probability of Kraft Heinz going for a U.S. food company for the time being," Zuanic said. "So, you know, that's why General Mills, Campbell's, Mondelez are done."
Kraft has been expected to do a deal this year, given earlier reports that 3G's Brazilian principals were raising a new fund.
But the food conglomerate hardly needs the deal to continue being successful, Feeney said.
"I think this is the best Idea I've heard in a while, but they can always walk," he said. "It's one that's going to require some very creative financing, but it's the best idea I've heard in a long time."
In December, rumors arose that Kraft Heinz was exploring an acquisition of American packaged foods maker Mondelez International, which sources close to the matter quickly denied.
Shares of Mondelez were down 2 percent on Friday.
"The structural opportunity that Mondelez represents versus its food peers remains, and if Kraft Heinz doesn't want to be the one to do that now or ever, certainly a proposal with Unilever makes their shopping list bigger," Feeney said.
Still, the consumer staples analyst said "there's enough structural growth opportunity selling high-margin chocolate and gum to developing market consumers that [make] Mondelez somewhat attractive in its own right," so a deal with the Cadbury egg maker could still happen.
Under U.K. takeover law, Kraft has until March 17 to make a formal offer. Unilever's board will then make a recommendation and decide, together with shareholders, if the company should take the deal.
Zuanic, the Susquehanna analyst, suggested that investors think about the consequences this deal could have for competitors over the medium and longer term.
"The piece that people maybe want to look at is implication[s] for Pepsi," Zuanic said.
The food and beverage analyst pointed out that Unilever and Pepsi are both in the ready-to-drink tea business, for example, which could suggest more intense competition in the U.S. tea and coffee market over the longer term.
— Reuters, AP, CNBC's Matthew J. Belvedere and David Faber contributed to this report.
Correction: This story was revised to correct that the 10 percent decline in Unilever's premarket price was Friday.
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