NEW YORK (N.Y. Times) -- In a deal that sets the stage for further consolidation in the food industry, Unilever said Tuesday that it would pay $20.3 billion in cash to acquire Bestfoods, the maker of Knorr soups, Skippy peanut butter and Hellmann's mayonnaise.
Unilever will be rivaled only by Nestle SA as the world's largest food maker once the combination is completed.Unilever hopes that Bestfoods' well-known brands will enable it to regain power with supermarkets, which have been consolidating rapidly over the last two years.
Food manufacturers have lost much of their ability to demand shelf space for their products as the supermarket business has become concentrated in a few hands. Desirable brands and burgeoning sales could help shift the balance of power.
"The global retailers are clearly looking for brands that can draw consumers into their stores," said Antony Burgmans, the co-chairman of Unilever, in a telephone interview Tuesday after the deal was announced in New York. "Knorr will now become the largest Unilever brand, and it will play a terrific role in the eye of the retailer in drawing crowds into their stores."
Unilever, an Anglo-Dutch company, had originally offered about 10 to 20 percent less for Bestfoods, but Bestfoods' chairman and chief executive, C.R. Shoemate, resolutely held out for a higher price. Unilever was willing to pay more in part because it identified additional savings that could be achieved, said Niall FitzGerald, the other Unilever co-chairman. The annual cost savings, originally estimated by Unilever at $500 million, came in at about $750 million, he said.
"Not all of them will be about eliminating things," FitzGerald said. "Some will be about efficiencies" in purchasing, for example, and other manufacturing areas. Still, securities analysts said they expected most of the savings to come through job reductions, although FitzGerald did not provide details.
At Bestfoods headquarters in Englewood Cliffs, N.J., "people are absorbing the news," said Gale L. Griffin, a company spokeswoman. Bestfoods, with 16,000 employees across the United States and 32,000 more abroad, is far smaller than Unilever, which has 255,000 workers.
"It's just a matter of deciding whose factory makes it and whose factory gets shut," said Daniel Peris, a stock analyst at Argus Research. "They will go over the assets one by one, deciding whose is stronger in India, in Latin America and in North America."
Unilever intends to fold its food-service business into that of Bestfoods, which has a stronger operation, Burgmans said last month. Bestfoods also has a big European operation, and the combined company will have considerable strength in Latin America and Asia. "At a single stroke, we could have them in a million shops," Burgmans said of Bestfoods products.
Bestfoods had about $9 billion in sales last year, while Unilever had about $43 billion from Ragu sauce, Lipton tea, Breyer's ice cream and other nonfood products, like Suave shampoo.
After the merger, the company will be known as Unilever and will retain its headquarters in London and Rotterdam.