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Why Kraft may not yet be done with Unilever

Kraft and Heinz products.
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Kraft and Heinz products.

U.S. food giant Kraft may have withdrawn its hostile offer for Unilever late Sunday but some analysts say that the European consumer goods group should not breathe a sigh of relief just yet.

While U.K. takeover law forbids Kraft from revisiting the offer for the whole of Unilever within the next six months, analysts at Citi think there are other options available to the owner of widely popular Kraft cheese sticks and Heinz tomato ketchup.

"Such release rules out a hostile offer on the whole company, but the careful wording still leaves room in our view for any type of agreed transaction in the future, which may not necessarily be for the whole group but for instance for the Food and Refreshments business (if both parties agree), making this unexpected event a potential agent of change for the Unilever portfolio," say the research team at Citi in a note published on Monday.

Indeed, the story is "far from over", according to Daniel Lacalle, Chief Investment Officer (CIO) at asset manager Tressis Gestion, speaking on CNBC's Squawk Box.

"I don't see how the company remains independent in the next five years," he added.

Lacalle was speaking prior to the start of trade in Europe on Monday and advised investors to "run away like there's no tomorrow" if they believed that Kraft had truly abandoned its pursuit of Unilever – timely advice given the stock price plummeted by more than 8 percent as soon as European markets opened at 8am London time (3am EST). The share price had run up over 13 percent when news of the takeover attempt broke last Friday.


"What you're going to have is not only the bid premium falling but multiple compression on a standalone basis because at the same time what you have is too many aggressive estimates following the share price," explained Lacalle. He rejected the view that cheap funding, which has been a key propeller of acquisition activity in recent years, was on the verge of drying up.

"Even though interest rates might be going up a little bit, they're still extremely low and if the numbers make sense for an acquisition, you can still understand the kind of leverage in the deal considering the synergies," contended the CIO.

The Citi research team also cast its net wider to consider the implications for regional Unilever's peers, should the American behemoth remain on the prowl on the continent.

"Kraft's intentions, and it may not be in our space, we do sense that the fact that it was ready to offer $143 billion for a company which it may have seen as offering untapped opportunity, despite having more than half of its revenue base outside its area of expertise and footprint, suggests that all European Food & HPC (home and personal care) players with a margin below 20 percent, and a market cap below $140 billion with no controlling shareholder, could feel the urgency to work on their portfolio and/or cost structure to avoid an unsolicited offer," read the Citi note.

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