Kraft Heinz and Unilever Merger OFF – Might Have Been Good News For Procurement?

(Breaking News - Sunday 6pm - Kraft Heinz pull out of after reading that Spend Matters has some misgivings about the proposed deal  ... seriously, the firm appears to be surprised at the strength of the opposition, looks like they were genuinely only interested if it was an agreed deal. We'll go ahead with our original article anyway, we think it might still be interesting for readers. And who knows, Unilever might still be a target for someone.) 

Who exactly is likely to benefit from the proposed acquisition of Unilever by Kraft Heinz? Proposed by Kraft Heinz, that is. Well, in the interests of full disclosure, I am personally almost £2000 wealthier than I was this morning (note; I wrote this last Friday evening). I had around £17,000 worth of Unilever shares in my self-invested pension plan (SIPP) on Friday morning -by Friday evening that was close to £20K.

By the way, all of you readers in final salary schemes, thinking that I must be very wealthy, be aware that you need around half a million quid in such a SIPP scheme to buy a pension of £20K a year these days.  Make that a cool £1 million if you want that index-linked, like those nice public sector pensions …

Anyway, shareholders are one group who will probably benefit if the merger happens, based on the initial market reaction. The other certain beneficiary group is senior management of both firms, who no doubt have all sorts of protections if they get made redundant, and incentives if the share prices do indeed rise (as both have so far).

But, what about everyone else? Suppliers to the firms? Presumably not, as we suspect there will be some huge “merger synergies” numbers quoted, of which a major part will no doubt be procurement savings based on “economies of scale” – largely  nonsense, but even so, it is unlikely to be good news for suppliers. Customers – either retailers or the end consumer? Unlikely certainly for the retailers, although we don’t have much sympathy for Wal-Mart, Tesco, Aldi and so on, who are not exactly reticent about using their own power in negotiations with suppliers.

Arguably, the end consumer might benefit by lower prices if real efficiencies are made. But at least as important, the reduction in competition and the market power of the new monolith is unlikely to be  positive for many consumers, we suspect.

What about the staff, and the communities in which these firms have their premises? That feels like potential bad news. Remember Kraft telling the UK government they would keep Cadburys’ factories open after they took over the iconic UK firm, then going back on that, although to be fair Mondelez (Kraft spun off the confectionery business into that new firm) does still employ 3,000 people in the UK.

It could be good news however for the procurement teams in both firms. Mergers can be a time of stress but also of opportunity and excitement for procurement folk – as we said earlier, there will be a big savings target to go for, and procurement will be seen as important players.

Thinking about procurement, and going back ten years or more, Heinz had some great procurement people; the visionary Rob Helmsley  led the UK business to the overall CIPS award way back in 2004. That was the first use of “optimisation” technology in procurement that I had seen, and very successful it was too; Heinz was well ahead of the game at that time, but I’m not clear that was sustained when people like Rob left. My perception is that Unilever has had decent procurement over the years, but not quite at the level of (say) competitors like Mars and P&G. Not sure really about Kraft, to be honest; no criticism intended, just have not had much exposure.

Anyway, interesting times for suppliers of the firms, for customers, for procurement teams and for lovers of baked beans, Ben and Jerry's, and “I Can’t Believe It’s Not Butter!” (Which must be the craziest yet most effective brand name invented in my lifetime). And if the share price of Unilever continues to rise, maybe I can retire before I’m 83 …

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