Unilever is hungry enough to go hostile

Besfoods has rejected the Anglo-Dutch group's cash offer and could be looking to reignite talks with Heinz

Unilever, the Persil to Magnum group led by Niall FitzGerald, said yesterday that it will not rule out a hostile bid for Bestfoods, the American maker of Hellmann's mayonnaise and Marmite spread. It will learn today whether the US company is prepared to soften its stance and agree to discuss an unsolicited $18.41bn (£11.8bn) takeover offer from the Anglo-Dutch giant.

Bestfoods, which has annual sales of $8.6bn, rejected Unilever's cash offer of $66 a share on Tuesday, calling it "financially inadequate" and not in the interests of shareholders.

It said Unilever had first approached it on 20 April with a $61-$64 offer but had later sweetened the bid.

Speaking at Unilever's annual meeting yesterday, Mr FitzGerald, Unilever's co-chairman, urged the American group to reconsider the proposal.

He said: "We are disappointed with Bestfoods' response and their unwillingness to discuss with us any aspect of our proposal. Unilever... remains available for constructive dialogue."

Mr FitzGerald has not ruled out going hostile or raising his offer to secure the deal, which would elevate the company above Philip Morris's Kraft Foods to become the second-ranked food company in the world behind Nestlé of Switzerland.

His stance yesterday sent Unilever shares down 36.5p to close at 348.75p on concerns that the approach could spark a bid battle, pushing the cash price of the deal higher.

A spokeswoman for Bestfoods, which changed its name from CPC International after it spun off its corn-refining business in 1998, said her company had not changed its position on the Unilever approach.

"We have already responded to Unilever. We have said that their $66 a share offer is inadequate."

But she indicated that the group, which last year held merger discussions with HJ Heinz, was more concerned about value than independence. "Our chairman has said he is very confident about our prospects as an independent company. But if there is somebody out their who could offer better value to our shareholders, then we would be prepared to consider it."

Analysts say it is possible that the US group could seek to reignite talks with Heinz or another company of similar size to itself in order to avert a full-scale takeover by its much larger suitor.

If successful, the deal would be Unilever's fourth large-scale acquisition in months. The group bought Amora Maille, the French mustard specialist for £460m last November and in April swallowed the more high-profile SlimFast Foods and Ben & Jerry's Homemade ice cream company for $2.3bn and $326m respectively.

The spree comes in sharp contrast to Unilever's strategy a year ago, when it returned £5bn to shareholders, judging that potential acquisitions were too expensive. Since then, says Mr FitzGerald, "the price of food companies has halved", leading to a focus on building the group's food portfolio.

But he says: "In my view, our offer of $66 a share [for Bestfoods] is a very full and more than fair price."

The offer represents a 30 per cent premium on the US group's closing price last Friday and a 10 per cent premium on the group's high of $60 a share. Mr FitzGerald said he is confident that the acquisition would produce annual cost savings of "north of $500m" and would be cash positive by the second year.

Analysts say the deal would make sense for Unilever but are concerned that the price could go too high. With operations in North America, Europe, Latin America, Asia, the Middle East and Africa and 60 per cent of group turnover coming from outside the US, Bestfoods is widely considered a more attractive target than other US food groups such as Heinz or Campbell Soup.

Iain Daly, of Charles Stanley, said: "Bestfoods has a reasonably good record. It's growing more quickly than Unilever, and Unilever has said that top line growth is its priority... The trouble is, it's a pretty large deal and would leave [Unilever] very highly geared... If it were to pay any more than it has offered, people would start to ask questions very quickly."

Nicola Mallard, of CCF Charterhouse, said: "Geographically, there is a very good overlap between the two companies and this would fit in with Unilever's focus on international "power brands"... but if they do this deal, it will pretty much preclude them from doing anything else for a couple of years."

Unilever has already drastically reduced its cash pile, which stood at £4bn at the end of 1998 following the sale of the group's chemicals division to ICI. The group's net cash at the end of last year, after it had paid its special dividend to shareholders, was £422m and Charterhouse expects that, even without the Bestfoods deal, Unilever will have sunk into the red to the tune of £600m by the end of 2000.

Mr FitzGerald is adamant that the group's balance sheet is "well able" to support the transaction and is understood to be preparing a $20bn syndicated loan to back the bid, arranged by banks including ABN Amro, Deutsche and Warburg Dillon Reed. But despite his apparent determination to seal the Bestfoods deal, he says that it will not affect the Unilever's wider strategy of paring down its portfolio to concentrate on 400 core brands and drive up revenues by five per cent at a cost of about 25,000 jobs. "Whatever the outcome, our stated strategy remains the same and we have confidence in it."