Unilver faces counter-bid by Heinz in battle for Bestfoods

A pitched battle for the American foods company Bestfoods was in prospect last night after it was reported that HJ Heinz was seeking to counter Unilever's $18.4bn (£11.8bn) all-cash offer. USA Today reported yesterday that Heinz was energetically seeking to woo Bestfoods into a "merger of equals".

This would pit two giants of the sector against each other: Niall FitzGerald, co-chairman of Anglo-Dutch Unilever, and Dr Tony O'Reilly, chairman of Pittsburgh-based Heinz. Dr O'Reilly is also chairman of Independent News & Media, which publishes The Independent.

Unilever is widely believed in the City to have flirted with the idea of a bid for Heinz on several occasions. USA Today reported that Dr O'Reilly is in New York, trying to convince Bestfoods chief executive Dick Shoemate that the deal with Heinz made better sense. He was said to be offering $72 a share, compared with $66 for the Unilever bid. Neither Heinz not Bestfoods would comment on the reports.

However, it emerged that Dr O'Reilly's was in New York for an America Ireland Fund dinner, at which he was being honoured. Dr O'Reilly is due to retire as chairman of Heinz at the annual meeting in September.

A spokesman for Unilever said: "We haven't ruled out being in a bid battle. But we believe the price we have offered is full and fair. We'd still like to talk to the Bestfoods board." Mr FitzGerald said earlier in the week that the group could raise its offer or go hostile to seal the takeover.

Bestfoods has operations in 60 countries and strong brands: Knorr soups, Mazola cooking oils and Hellmann's mayonnaise. It is a "good fit" with Unilever in strategic terms, said a New York analyst, but even before the Heinz bid emerged there had been doubts about the price. "It's very expensive," said the analyst.

Analysts say that although the Bestfoods board is likely to favour a merger of equals with Heinz, the US group's shareholders might be more inclined to accept a hostile cash offer from Unilever. One said: "If Bestfood agrees to a tie-up with Heinz, which would almost certainly be financed with a large proportion of equity, it would destroy management credibility. That would make it easy for Unilever to go hostile and take Bestfoods out at not much more than the $66 it is offering."

Unilever recently picked up the US diet food company Slimfast and the premium ice-cream manufacturer Ben and Jerry's, two of the strongest brand names in their sectors. The aggressive strategy comes in contrast to the company's decision to return £5bn to shareholders a year ago when it considered the price of targets to be too high.

Several Bestfoods shareholders have filed lawsuits alleging that the rejection by directors of Unilever's approach on Tuesday will deprive investors of the premium Unilever, or another potential bidder, could be prepared to pay.

Another analyst said he thought the Heinz proposal was more of a threat to Unilever. But he added: "Unilever's shareholders would probably breath a sigh of relief if its bid fails, given that the group is already engaged in a major restructuring and already has two major acquisitions to integrate."

Unilever's shares rose 12.25p yesterday to close at 377.5p.