Bestfoods, the maker of Skippy peanut butter and Hellmann’s mayonnaise, agreed Tuesday to be purchased by European conglomerate Unilever for $20.3 billion, creating the largest food company in the world.
The final offer of $73 a share, made nearly a month after Unilever first courted Bestfoods, was 11 percent higher than Unilever’s original unsolicited bid of $18.4 billion, or $66 a share.
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Unilever will also assume about $4 billion in debt as part of the deal. The companies estimate their combination will lead to savings of up to $750 million annually.
Their combined revenue in 1999 of about $52 billion easily surpasses that of Nestle SA, which had $46 billion in sales last year.
Shares of the Englewood, N.J.-based Bestfoods surged nearly 10 percent Tuesday on the New York Stock Exchange, up $6.188 to $69.188. Shares of Anglo-Dutch conglomerate Unilever rose 87.5 cents to $51.25, also on the NYSE.
Wall Street analysts praised Bestfoods’ deft handling of the negotiations to achieve a higher price for their shareholders.
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By GlobalData“It was somewhat high-stakes poker, but in the end it worked,” said Mitchell Pinheiro, an analyst at Philadelphia-based Janney Montgomery Scott LLC.
Others said it was worth the higher price.
Unilever will benefit by obtaining Bestfood’s long menu of well-known brand names, which also includes Knorr soups and Thomas’ English muffins,said PaineWebber analyst John O’Neil.
In addition, the acquisition provides Unilever with significant inroads into emerging markets where Bestfoods already has established a presence.
For example, Knorr soups rank number one in market share across much of Latin America and Asia. The same is true for Bestfoods’ corn oil and starches products.
The deal, which is subject to regulatory approval in both Europe and the United States, is expected to be completed by the end of the year.
A month ago, Bestfoods spurned Unilever’s original offer, saying the bid was too low and that Bestfoods preferred to remain independent.
But Unilever, which owns Lipton teas, Ragu sauces, Vaseline, and Pepsodent toothpaste, and which recently bought Ben & Jerry’s ice cream business, was persistent, discreetly keeping channels of communication open.
Meanwhile, Bestfoods officials remained coy, refusing to confirm or deny speculation that the company was talking with several other large food companies.
Since rejecting Unilever’s original offer, Bestfoods was widely rumored to be in negotiations to sell all or part of its operations to Diageo PLC, which owns Pillsbury baking products and was formed by a merger between Grand Metropolitan PLC and Guinness PLC.
Then reports surfaced over the weekend that Bestfoods was close to acquiring long-ailing Campbell Soup for $15 billion.
But most observers who follow the company said Bestfoods was likely using the speculation as a bargaining ploy to extract a higher offer from Unilever.
In recent days, conjecture grew that pressure was mounting on Bestfoods executives to accept a sweetened bid from Unilever in the belief that Bestfoods officials would have trouble justifying objections to an offer of more than $70 a share.
The acquisition is expected to act as a catalyst for future partnerships in the long-dormant food products sectors, analysts said.
That’s because the huge multinational companies that are looking to expand their markets through acquisitions of smaller companies know they will need to add strong brand names, similar to those now owned by companies like Bestfoods, Heinz and Campbell Soup.
Another factor adding to the apparent urgency of large food companies to purchase smaller ones has been consolidation within the retail grocery store sector. As grocery chains have merged and become larger and stronger, food companies have realized that they must keep pace in order to negotiate prices and product placement with stores on an equal footing.
