By Saabira Chaudhuri 

LONDON-- Unilever PLC Chief Executive Paul Polman is digging in to resist Kraft Heinz Co.'s $143 billion offer, warning board members and investors that Kraft's cost-cutting ethos could damage Unilever brands and highlighting its lack of experience in personal-care and household goods, according to people familiar with the matter.

Price remains the biggest factor, after Unilever management rejected the $50-a-share cash-and-stock offer outright Friday. Management and directors believe the 18% premium is significantly below what is necessary to trigger talks, people familiar with the matter said. Directors are considering a board meeting as early as this week, but serious discussions about Kraft's approach aren't likely without a higher price, according to one person familiar with the matter.

Valuation aside, 3G Capital Partners LP, which orchestrated the 2015 merger of Kraft and Heinz with Warren Buffett, and remains Kraft's biggest shareholder, faces a host of other hurdles that make a deal more complicated to pull off. Unilever maintains a complicated dual structure in the U.K. and the Netherlands that gives governments, regulators, certain shareholders and other players outsize say in whether a deal gets done.

In the Netherlands, the company's European Works Council, comprising worker representatives, must be kept apprised of deal developments. It probably couldn't prevent a deal from happening, but with an election in the Netherlands being held next month, labor opposition could trigger closer scrutiny by the government.

Hermann Soggeberg, chairman of the council, said he and his colleagues were "surprised" and "worried" by Kraft's approach. "I'm for the moment relieved that this offer was rejected," he said.

Meanwhile, two big institutional investors in the Netherlands will play an important role. Insurers NN Group NV and ASR Nederland NV, which is majority owned by the Dutch government, together account for about 20% of the voting rights in Unilever NV, the Dutch arm, according to a person familiar with the holdings. That translates into roughly 8% of the combined companies' voting rights. An NN Group representative declined to comment, while ASR didn't immediately respond to a request for comment.

In the U.K., the Leverhulme Trust, a research-focused charity, owns over 5% of the British arm of the company, according to FactSet. The trust was set up in 1925 by William Hesketh Lever, the founder of Lever Bros., which merged with a Dutch margarine maker to form Unilever. The trust's board includes Mr. Polman and two former Unilever CEOs. A trust representative didn't immediately respond to a request for comment.

None of these investors likely could block the deal on their own, but they would be important allies for Mr. Polman, or Kraft, in any protracted standoff.

Kraft also has potential hurdles at No. 10 Downing Street. Last year, during her leadership race, Prime Minister Theresa May specifically cited what critics have called broken promises over jobs by Kraft when it bought British chocolate maker Cadbury in 2010. That deal forced tighter oversight of takeovers, requiring more transparent disclosures in areas like job cuts.

When Pfizer Inc. made an unsolicited $120 billion bid for AstraZeneca PLC in 2014, the deal attracted heated criticism in the U.K. over potential job losses and the deal's structure, which would have moved Pfizer's tax home to Britain, where taxes are lower. AstraZeneca dug in its heels, and Pfizer walked away.

Mrs. May's government was scrutinizing what the proposed takeover would mean for the British economy, a U.K. government official said Sunday, and whether the deal merited government intervention. The official said this is standard procedure for a proposed deal of this kind.

In Kraft's favor, Unilever's institutional shareholder base looks a lot like that of SABMiller, the beer giant that Anheuser-Busch InBev SA swallowed for $110 billion last year. That deal was led by the same people behind 3G, which is now pushing the Kraft deal. SABMiller initially said no, too. But after AB InBev raised its offer several times, the board agreed to the deal.

One major difference: A big chunk of SAB Miller shares were held by just two shareholders-- Altria Group Inc. and Colombia's Santo Domingo family, both of whom were in favor of the transaction. Unilever's shareholder base is less consolidated, which could complicate matters for Kraft.

Mr. Polman is a consumer-goods veteran, who worked at Procter & Gamble Co. and Nestlé SA before becoming Unilever's CEO in 2009. Last week, after learning of the surprise bid, he pushed ahead with a visit to Unilever's Asian headquarters in Singapore. He rallied management in the face of the bid, according to people familiar with the matter, while signing off on the hiring of an array of legal, financial and other advisers.

While price remains key, Mr. Polman also wants to protect Unilever's reputation for promoting sustainability initiatives, including environmental and human-rights efforts, according to people familiar with the matter. Some investors have complained in the past that Mr. Polman has spent too much time on those efforts, instead of focusing on returns. Supporters say the efforts help, including by attracting stronger talent.

On Friday, the day news of Kraft's approach became public, Mr. Polman met with Vietnam's prime minister, smiling and seemingly unfazed in front of reporters. He returned to London from Vietnam over the weekend.

Ben Dummett and Jenny Gross contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

 

(END) Dow Jones Newswires

February 19, 2017 12:24 ET (17:24 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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