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Expand chart
Data: Yahoo! Finance; Chart: Harry Stevens/Axios

It was as bold and audacious as takeover bids get: In February 2017, Kraft Heinz bid $143 billion to buy Unilever in a cash-and-stock offer valued at $50 per share.

By the numbers: Kraft Heinz itself was only valued at $106 billion at the time, but it managed to put together a bid of 0.222 of its own shares, which were valued at more than $80 each, as well as $30.23 in cash, for each Unilever share.

  • The offer, which valued Unilever at an 18% premium to where it had been trading in a Brexit-depressed market, was greeted ecstatically by traders, who bid up stock in both companies as a result. But it was summarily rejected by Unilever, and Kraft formally withdrew its offer just three days later.

With the benefit of hindsight, Unilever was unambiguously correct to reject the Kraft Heinz bid.

  • Unilever stock continued to rise even after the bid was withdrawn, and the company has been worth significantly more than the $50 per share offer price for nearly all of the past two years. The company is today worth about $150 billion.
  • Meanwhile, Kraft Heinz shares have imploded to less than $35, giving the company a valuation of just $43 billion. If Unilever shareholders had found themselves owning 0.222 Kraft shares instead, they would have been very unhappy — not to mention the fact that they would have had to be making interest payments on a massively enlarged debt stock.

Kraft Heinz is operated by 3G Capital, a Brazilian company notorious for its cost-cutting. The company's playbook worked well, until it didn't. Profits go up in the short term when you cut costs, but 3G is very bad at investing in future growth. Instead, it tends to grow via acquisition, and that turns out to be hard when no one wants to be bought by you.

The bottom line: Cutting costs does nothing to improve brand value, as Unilever knew in 2017 and as Kraft Heinz has now discovered. Once brand value has been eroded (to the tune of roughly $15 billion, in the case of Kraft Heinz), it's extremely hard to recover.

Go deeper: Kraft Heinz stock implodes on gruesome earnings

Go deeper

In cyber espionage, U.S. is both hunted and hunter

Illustration: Eniola Odetunde/Axios

American outrage over foreign cyber espionage, like Russia's SolarWinds hack, obscures the uncomfortable reality that the U.S. secretly does just the same thing to other countries.

Why it matters: Secrecy is often necessary in cyber spying to protect sources and methods, preserve strategic edges that may stem from purloined information, and prevent diplomatic incidents.

53 mins ago - Politics & Policy
Scoop

White House plots "full-court press" for $1.9 trillion relief plan

National Economic Council Director Brian Deese speaks during a White House news briefing. Photo: Alex Wong/Getty Images

The Biden White House is deploying top officials to get a wide ideological spectrum of lawmakers, governors and mayors on board with the president’s $1.9 trillion COVID relief proposal, according to people familiar with the matter.

Why it matters: The broad, choreographed effort shows just how crucially Biden views the stimulus to the nation's recovery and his own political success.

53 mins ago - World

Scoop: Sudan wants to seal Israel normalization deal at White House

Burhan. Photo: Mazen Mahdi/AFP via Getty

Three months after Sudan agreed to normalize relations with Israel, it still hasn't signed an agreement to formally do so. Israeli officials tell me one reason has now emerged: Sudan wants to sign the deal at the White House.

Driving the news: Israel sent Sudan a draft agreement for establishing diplomatic relations several weeks ago, but the Sudanese didn’t reply, the officials say. On Tuesday, Israeli Minister of Intelligence Eli Cohen raised that issue in Khartoum during the first-ever visit of an Israeli minister to Sudan.

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