In the populist age of President Donald Trump – when CEOs are routinely hauled to Washington and browbeaten on live television over an America-first jobs agenda – it makes perfect sense for Kraft Heinz to shock Wall Street and take its ruthless deal-making abroad.

On Friday morning, Kraft Heinz said it has made an unsolicited takeover offer for Anglo/Dutch consumer products giant Unilever, a surprise move that would yield one of the biggest corporate acquisitions in history at a value of around $143 billion. Unilever said in a statement it has rejected Kraft Heinz’s cash and stock offer because it “fundamentally undervalues Unilever.” The company further “sees no merit, either financial or strategic, for Unilever’s shareholders” and “does not see the basis for any further discussions.”

Kraft Heinz is backed by Berkshire Hathaway and it is run by Warren Buffett’s favorite deal-making partner, Brazilian private equity firm 3G Capital. Four years ago, Buffett and 3G Capital partnered on a $28 billion takeover of Pittsburgh-based ketchup giant Heinz. Within two years 3G Capital partner Bernardo Hees, Heinz’s CEO, oversaw a dramatic improvement in the ketchup-maker’s profitability.

Through plant closings, job cuts, and a ruthless focus on costs, 3G Capital increased Heinz’s earnings before interest, taxes, depreciation and amortization (EBITDA) by 35% to $2.8 billion, or 800 basis points, in two years’ time. Then 3G Capital sets sights on a new target, buying Kraft Foods for nearly $40 billion in March 2015. Again came a steady beat of plant closings, job cuts, and increased profits. In the fourth quarter, Kraft Heinz saw its operating income surge 22% year-over-year, despite a 3.7% decline in net sales and modest 1.6% increase in organic sales.

Wall Street always expected Kraft Heinz, the 3G Capital and Warren Buffett deal-making machine, would chug onward. However, the most likely potential acquisition was seen as Mondelez, once a piece of Kraft Foods and currently undergoing a cost-cutting program under CEO Irene Rosenfeld, which mimics 3G Capital’s bottom-line discipline. Other rumored deal targets were General Mills, Kellogg’s, Campbell’s Soup, or even Hershey.

But the optics of office closings and newly unemployed workers in Illinois, Minnesota, Michigan and Pennsylvania, where these companies are headquartered, would have been extremely poor. Perhaps President Trump would see a Brazilian-backed private equity firm squeezing out billions of dollars in costs – and jobs – from an American consumer icon as the epitome of the economic “carnage” he is attempting to halt. (Kraft Heinz declined to comment on this premise.)

It is a surprise that Kraft Heinz has set its sights on Unilever, one of Europe’s largest conglomerates, with brands ranging from Axe deodorant to Hellmann’s mayonnaise, Dove soap, Ben & Jerry’s ice cream, SunSilk razor blades and Sun dishwasher fluid. But this may be a savvy maneuver. Not only would a deal avoid the wrath of Trump, it also takes advantage of the sharply tumbling euro and British pound in the wake of Brexit, and a strengthening U.S. dollar.

Kraft Heinz’s fast-rising stock and its cash may have allowed its deal backers to set their sights higher than soup or cereal. Kraft Heinz has offered $50 a share for Unilever, split between $30.23 a share in cash payable in U.S. dollars and 0.222 shares in the combined company, valuing its target at $143 billion. While that offer amounts to a 18% premium, it is a take-under from year-ago levels when accounting for foreign exchange. This bid, Unilever believes, is a nonstarter.

But Unilever shouldn’t underestimate Kraft Heinz, and there is likely a winning deal to negotiate. After all, the reason Kraft Heinz is able to target powerhouse Unilever traces back to the home-run merger struck between Heinz and Kraft Foods.

In that deal Heinz offered Kraft Foods shareholders 49% of the combined company and paid only a fraction of the acquisition price in cash. It meant Kraft Foods shareholders would benefit mightily if the Buffett/3G duo succeeded in creating value. Better yet the stock financing kept the combined company underleveraged, offering the financial flexibility to make new deals. On both fronts, shareholders did extremely well. Kraft Heinz has performed strongly in its time on public stock markets; its shares are surging anew on Friday due to deal fireworks. Unilever’s board of directors now stands in a similar position as Kraft Foods’ board did when negotiating with Heinz.

Kraft Heinz’s offer sets the stage for a process that may unfold over a matter of months. It has until mid-March to make a formal bid for Unilever and 3G Capital is familiar with large and hostile cross-border deals. In October, 3G-backed Anheuser-Busch completed a takeover of SAB Miller in what was one of Europe’s biggest-ever corporate mergers.

Warren Buffett and 3G Capital are the most formidable deal-making duo in the history of Wall Street and Kraft Heinz shares are a currency that one day may swallow a major chunk of the consumer products industry. Restaurant Brands International, the owner of Burger King and Tim Horton’s, is another Buffett and 3G Capital roll-up. Anheuser-Busch was 3G’s original acquisition masterpiece.

For now, it appears Buffett and 3G Capital are taking their money abroad. It may be a savvy calculus that both avoids Trump and benefits from a strengthening dollar and continued malaise in European markets.

http://www.forbes.com/sites/antoinegara/2015/08/13/bill-ackman-mondelez-nomad-foods-buffett-3g-kraft-rosenfeld/#3dcb7bd94fbc

 Antoine Gara ,  

FORBES STAFF

Pershing Square’s Bill Ackman sees far more in the rapidly changing foods industry than simply an opportunity to buy stocks that will soon be taken out by acquisition hungry giants such as Kraft Heinz.

Last week, when the Wall Street Journal first reported Pershing Square’s $5.5 billion stake in Mondelez, the immediate reaction was that Ackman was betting he could press a sale of the company to Berkshire Hathaway BRK.B +% and 3G Capital-controlled Kraft Heinz, netting a quick and easy return. However, when Berkshire bought aviation industry parts supplier Precision Castparts PCP +% for $32.3 billion a few days later, Berkshire’s Warren Buffett appeared to throw ice on the idea, stating in a CNBC appearance that Kraft Heinz has its “work cut out” over the next few years as both companies integrate their operations.

Most people feel Oreo cookies are delicious. MANDEL NGAN/AFP/Getty Images)

So has Ackman’s Mondelez playbook been tossed out the window in a week’s time? Not really. In fact, a Thursday morning deal that Ackman’s adjacently involved in, Nomad Foods’  $780 million acquisition of European frozen foods firm Findus Group, underscores that the billionaire activist investor has big plans for the rapidly changing foods industry.

Nomad is guided by Jarden JAH +% chairman Martin Franklin and it counts Pershing Square as both a 21.7% shareholder and a cheerleader as the London-listed firm hunts for acquisitions, mostly by negotiating deals in Europe for companies owned by private equity firms who want to exit their investments. One of Pershing Square’s so-called ‘platform investments,’ Ackman’s calculus is that Nomad has the leadership to find brands at attractive prices and form a substantial company from scratch that operates at industry-leading margins.

With Mondelez, however, Ackman is going in the opposite direction.

He’s targeting one of the foods industry’s largest players, with some of the most established brands, for instance, Oreo cookies, Trident gum (not a food, technically), and Ritz crackers. There’s little adding to Mondelez’s brand portfolio that’s needed from Pershing Square, or any hand picked executive or board nominee. Instead, Mondelez, with its laggard margins, is one of the food industry’s most inefficient players and improvements are needed.

On Monday call with investors, Pershing Square partner Ali Namvar laid out the hedge fund’s cards on its investment. “We think Mondelez has by far the greatest cost saving opportunity among its peers.”

Pershing Square isn’t just flying blind into the situation. The firm was an investor in Cadbury before it was acquired by Kraft for $19.6 billion in 2010, and it liked the deal enough to then become a major Kraft investor as the acquisition closed. At the time, the fund believed Kraft was just beginning what could be an over half-decade cost saving plan, which could yield significant profits.

Ultimately, amid investor pressure, Kraft decided to split apart, forming a refrigerated foods company in Kraft Foods and a snack company in Mondelez. However, as independent companies, Kraft Foods and Mondelez both were somewhat slow on the uptake to deliver expected cost savings. Around that time, Buffett and 3G Capital bought Heinz and quickly wrenched out hundreds of millions in cost cuts, signaling that margin improvements were achievable. So much so, in fact, Buffett & Co. then bought Kraft Foods to undertake a similar cost cutting effort.

In the wake of that deal, Pershing Square, which liked Kraft’s acquisition of Cadbury far more than Buffett, decided the better opportunity lay with Mondelez. However, as Pershing’s Namvar told investors, Buffettt and 3G’s deal Kraft Foods means the time to act is now. “Mondelez is at a critical inflection point, in that they are just seeing margins improve,” he said, citing second quarter results that showed big improvements in profitability.

“We think the whole industry is under change… 3G Capital is setting new benchmarks for efficiency, organizational structure and profitability. We think all of the leaders are looking at this and saying we need to evolve. The old ways of doing business won’t pass muster,” he added. Pershing Square took its stake in Mondelez for fear of missing out on gains as CEO Irene Rosenfeld begins to gain momentum in efficiency improvements.

Thursday’s Nomad Foods deal, in addition to Pershing Square’s roughly 20% stake in Burger King parent Restaurant Brands International, should tell investors the hedge fund isn’t just a fly by night player in the foods space with only a plan to belligerently agitate for the sale of Mondelez.

That Pershing Square is just now taking a major stake in Mondelez, in fact, could have been predicted in 2010.

Here’s what the firm said about the cost saving opportunities ahead for Kraft in February 2010:

[Kraft] today: Pershing Square view — Turnaround is achievable

• Fixing a company like KFT (many brands, regions) often takes five+ years – Witness Cadbury, Unilever—only now seeing impact of several years of restructuring
• Investors have lost patience –-hence why the turnaround is discounted in the stock price
• Not just about cost cuts, but innovating and improving the brands through R&D and marketing
• New CEO has made smart decisions regarding brand investment and portfolio M&A
• Brands are better positioned today, given improved price/value equation and improved product quality
• Significant opportunities still remain in COGS and overhead—however some of it should be reinvested in the business to strengthen brands
• Clearly, MARGINS SHOULD BE MUCH HIGHER—we believe it’s a matter of time…

Bottom Line: Rather than risking missing out on the looming changes to the foods industry, Pershing Square is acting now by buying up 7.5% of Mondelez. Also read FORBES’ April cover story on the restructuring of Twinkie-maker Hostess to see how other investors are making billions by transforming bloated snacks brands.