Is a Kraft Unilever Deal Still Possible?
American food giant Kraft Heinz sent an unsolicited and unwelcome takeover offer to British food giant Unilever and was promptly rejected. Is it over or is a Kraft Heinz Unilever deal still possible? Forbes suggests the war is far from over.
Kraft Heinz dropped an unsolicited and unwelcome bid for Anglo-Dutch consumer goods group Unilever within several days after it had been forced to make its approach public, following a sharp rejection by the target firm and concerns over the reaction by the public and governments, with British ministers leaping to the defense.
But while the $143 billion bid, one of the biggest in corporate history, was meant to be the first shot in a takeover battle, the tactical retreat does not mean that the war is over and Unilever is not in the clear.
Berkshire Hathaway has a record of taking over companies and creating value for shareholders by cutting costs and rewarding top management for profits no matter how they are obtained. This approach has turned Heinz around but is totally different from how Unilever operates. Can Unilever continue to turn down increasing offers to their shareholders? Forbes says that the problem for Unilever is to increase profits without jeopardizing its long term outlook. Otherwise short term investor focus will win and Unilever will eventually fall victim to short term investor greed. How should an options trader approach this situation? And should traders be concerned about leaks?
Early Options Trading
Business Insider reports on Unilever trading just before Kraft Heinz made its offer. Was there something fishy?
Recent options trading in Unilever, however, has raised some eyebrows as a spike in upside bets started a few days before the deal was announced.
According to data collected by Bloomberg, 10,909 call options were traded on Wednesday, the most in any day since 2011.
Essentially, these are contracts that give an investor a right to buy Unilever stock at a specified price at a specified time. Call options are typically thought of as a bet the stock will go up, since a trader profits if the stock goes above the option price.
Put options - basically, the opposite bet on the stock falling - traded only 232 times on Wednesday.
On Wednesday, most of the calls bought were for $40 and $45 strike prices with the expiration date of March 17. According to the companies, Kraft offered $50 a share for Unilever, and the bets are already profitable as Unilever shares were up 10% near $47 on Friday.
Somebody was in the know before the announcement! Nevertheless the offer has been made and refused. If Kraft Heinz continues its pursuit will that drive up the Unilever stock price? If so should you be buying calls? How much higher could continued interest by Kraft Heinz drive up the Unilever stock price? For that matter is there a deal that could be made that would not be viewed as a threat by Unilever? Warren Buffett and Berkshire Hathaway invest for the long term. Will that philosophy have an effect on Unilever stock? Stay tuned.