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Unilever wins Bestfoods
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June 6, 2000: 6:11 p.m. ET
U.S. food company accepts $73 per share cash offer from Anglo-Dutch firm
By Staff Writer Tom Johnson
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NEW YORK (CNNfn) - Acquisition-hungry Unilever PLC concluded its prolonged courtship of U.S. food company Bestfoods Tuesday, agreeing to purchase the maker of Skippy peanut butter, Hellmann's mayonnaise and Knorr soups, for $24.3 billion in cash and debt.
The transaction, which will create the world's dominant packaged goods company, ends more than five weeks of on-again, off-again negotiations that ultimately forced a reluctant Unilever to raise its takeover bid by more than 10 percent amid rumors that Bestfoods (BFO: Research, Estimates) was moving to make an acquisition of its own.
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CNNfn's Diana Muriel reports on today's merger.
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Analysts expect the deal will ignite a wave of consolidation not seen in the food industry for more than decade, as other companies scramble to keep up with Unilever, which will now boast of leading worldwide positions in such categories as culinary products, tea, ice cream, frozen foods and spreads.
After the merger, the company will rank as the world's largest food conglomerate ranked by total sales -- eclipsing Swiss powerhouse Nestlé -- boasting combined annual revenue of $52.3 billion and annual profits of $6.2 billion.
"This transaction creates the preeminent global food and consumer goods company," said Niall FitzGerald, Unilever's chairman and chief executive officer. "Together we will have a portfolio of powerful worldwide and regional brands, with strong growth prospects."
"This merger is not just about [cost savings]," said John O'Neil, a food industry analyst with PaineWebber, who, along with a handful of other analysts, has routinely predicted the company would eventually garner a sales price of between $72 and $75 per share. "It's the opportunity to integrate the two businesses and generate new revenue growth."
 Tuesday's agreement calls for the Anglo-Dutch consumer goods maker to pay $73 per share in cash for Englewood Cliffs, N.J.-based Bestfoods, valuing the company at $20.3 billion. Unilever will also assume roughly $4 billion in Bestfoods' debt.
Unilever also expects the deal to add to its earnings per share during its first full year of operation.
"They managed to get the price up from $66 [per share] to $73 in the absence of a competing bid, so I think that would be considered a success," said William Leach, an analyst with Donaldson, Lufkin & Jenrette. "I've always thought these companies fit together quite well, so I think it was a logical move for Bestfoods."
For Unilever (UN: Research, Estimates), the deal fills the company's most glaring need -- establishing a sizable presence in the U.S. food business.
Unilever's primary focus thus far has been on packaged goods such as Lipton tea, Dove soap and Elizabeth Taylor fragrances, although the company has recently stepped up its efforts to fill out its product line, buying ice cream maker Ben & Jerry's Homemade Inc. and diet food company Slim-Fast for more than $2.6 billion.
Unilever officials intend to leverage their company's strength in international distribution with Bestfoods' strength in the United States and in certain regions like Latin America, where Unilever has been slower to expand. O'Neil said Unilever will also benefit from Bestfoods' strength in the food service business.
"There are very strong top-line synergies that are gravy on this kind of merger," he said.
Despite little geographic overlap, Unilever also expects to wring roughly $750 million in cost savings from the combination, up from the $500 million they originally estimated.
"The complementary nature of our geographic coverage and our combined product portfolio together with Bestfoods' strong food service operations, will enable us to further raise our growth ambition," FitzGerald added.
Bestfoods shares soared in early afternoon trading, jumping 6-3/16 to 69-3/16, while Unilever's American depositary receipts climbed 7/8 to 51-1/4. Unilever shares in London rose 7 pence to close at 44 pence.
The long and winding road
Still, completing the deal was a difficult odyssey for Unilever, which first approached Bestfoods in early May with an offer to purchase the company for $66 per share. The unsolicited offer ultimately was rejected as inadequate.
The two sides then went several weeks without serious discussions, even as Bestfoods mulled making a large acquisition of its own to fend off an unsolicited takeover bid.
 Unilever's management considered making a hostile bid, but ultimately resisted that strategy because they did not want to alienate Bestfoods officials, who they had hoped would continue running the operation after a merger. Company officials, however, also did not particularly want to sizably increase their bid in the absence of a third-party bidder.
But the negotiations heated up last week after Unilever raised its offer to more than $70 per share amid reports that Bestfoods was entering serious discussions to acquire troubled Campbell Soup Co. (CPB: Research, Estimates) -- rumors widely dismissed by analysts as a negotiating ploy meant to induce a higher buyout offer from Unilever.
Still, in addition to the higher bid, sources said Bestfoods was forced to the negotiating table by intense pressure from its top shareholders, who were concerned the company might walk away from the deal to acquire Campbell, which has struggled to improve earnings in recent quarters.
Bestfoods' directors met late Monday to consider the revised offer -- marking the board's first formal discussion of the potential merger -- and the two sides hammered out the final details Tuesday morning, sources said. 
-- Staff Writer Jamey Keaten contributed to this report
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