How Morgan Stanley helped Unilever win the 'seven day war'

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Investment bankers in Europe describe Unilever as one of the most sophisticated users of investment banks in the world. “They know all of our strengths and all of our weaknesses,” says one banker who has covered the Anglo-Dutch conglomerate for many years.

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So when Kraft Heinz, the US food giant that is co-owned by aggressive Brazilian private equity group 3G Capital and Warren Buffett’s Berkshire Hathaway group, made an unsolicited bid for Unilever at the beginning of February 2017, and its very existence was in play, it had to turn to an investment bank it could trust. 

Boutique adviser Centerview was already on board with Unilever, having been hired some time earlier to deal with activist investor issues. Unilever also needed a big hitter in defence mandates. In such circumstances, there are usually two options: Goldman Sachs or Morgan Stanley. Unilever chose the latter. 

What followed was described as a “seven-day war of independence” for Unilever. And at the heart of the defence was what one Morgan Stanley colleague calls the firm’s secret weapon – Mark Rawlinson. He joined Morgan Stanley as UK chairman of M&A in 2016 from law firm Freshfields. 

Rawlinson worked as a lawyer for three decades, although he points out that many investment bankers he worked with on deals during that time joked that he was far more interested in the strategic advice about mergers than he was the legal technicalities. When Morgan Stanley came calling, he says he had no need to move. “It took me a year to get my head around it,” Rawlinson says. “I met James Gorman and Colm Kelleher, and many of the MDs in both London and New York. At the end of the day, I only wanted to join if I felt at home and I could enjoy the role. It’s a lot more collegiate and collaborative than I imagined it might be.”

Not long after Rawlinson joined Morgan Stanley, Unilever CEO Paul Polman was approached by Kraft Heinz. Rawlinson knew the 3G business inside out. As a lawyer, he had taken a lead role in tactics around the acquisition of SAB Miller by AB Inbev, another 3G-owned company. On that deal the lead 3G executives were founding partners Alex Behring and Marcel Telles. Both were on the Kraft Heinz board.

Rawlinson knew that Kraft Heinz’s strategy would be to make a low initial bid, but then over the 28 day ‘put up or shut up’ (PUSU) window that it would then have to conclude a deal, the bids would rise incrementally until the clamour for an offer to be accepted overwhelmed Unilever’s board. “We knew we had to hit back straight away,” says Rawlinson. “We had seven days to stop the bid, not 28.”

As forecast, Kraft Heinz came in with a low early bid when Behring met Polman in London on February 10. He offered a premium to Unilever’s existing share price of just 18%, valuing the business at $143 billion. 

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“We knew we had to hit
back straight away,”
says Rawlinson.
“We had seven days to
stop the bid, not 28.”
- Mark Rawlinson
In that time, Unilever and its advisers got their ducks in a row. They got ready for the PR campaign that would be crucial, as well as for lobbying efforts to the Dutch and UK governments. In the meantime, Kraft Heinz had lost its PR adviser, Finsbury, over a conflict of interest with the agency’s parent company WPP. News of the bid leaked a week later. 

On February 17, Kraft Heinz put out a statement saying that it had made a comprehensive proposal and looked forward to reaching an agreement. Bankers on the deal say that Behring may have been encouraged by the fact that Polman had met him for the second time in a month, even though at the first meeting, in January, no bid had been discussed. “They thought, wrongly, that they were getting a come-on,” says one banker. 

One hour later, Unilever hit back. The company said the 18% premium fundamentally undervalued the company, the merger had no strategic value and its board saw no basis for any further discussions.

It was a good start and shareholders were supportive of the rejection at those levels. But it was only a start. “If you look at the data since 2011, almost 75% of larger bids end up being recommended before the end of the PUSU period,” says Rawlinson. “The 28-day period provides great leverage for a target that wants to be taken over, but is often too short for some ‘value’ defence strategies, like a demerger.”

Without that time, Morgan Stanley and Centerview went for a different option. They knew that Buffett hated hostile bids, even if 3G had become proficient at them. So they aimed to drive a wedge between Buffett and his Brazilian partners. Both the Dutch and UK governments questioned allowing the bid to go through. Unilever consistently stuck to the rejection line, while making sure it did not annoy shareholders by going too far and saying they would not accept a bid in any circumstances. 

Unilever also sent letters to the three main actors in Kraft Heinz – Buffett, Behring and Telles – reiterating that the bid was not welcome, the defence would be robust and the whole deal would be incredibly hostile. It was the kind of white-knuckle ride Buffett has spent a lifetime avoiding and he quickly told 3G he did not want any part of the transaction.

By the weekend of February 18, Behring called Polman to back off. 3G released a statement praising Unilever’s management and business. Some bankers away from the deal have described it as “the most grovelling withdrawal in history”.

For Morgan Stanley, it was a triumph – one that showed the power of its defence franchise and cemented its relationship with Unilever. It is currently advising the company on its planned disposal of its spreads business. 

For Rawlinson personally, it was quite a moment too. “I could not have asked for a more interesting debut as an investment banker,” he says happily.