Consolidation Trend Continues With Unilever & Bestfoods; Nabisco May Be Next.

After many weeks of negotiations and traded offers, global consumer product group Unilever plans to take over Bestfoods for $20.3 billion. The deal, which creates the largest food company, will boost Unilever's long-term sales growth and margins. The offer of $73 per share, made nearly a month after Unilever first courted Bestfoods, was 11 percent higher than Unilever's original bid of $18.4 billion, or $66 a share. Unilever also will assume $4 billion in debt. The companies estimate their combination will produce savings of up to $750 million annually.

Unilever co-chairman Antony Burgmans said adding Bestfoods brands would allow Unilever to increase its revenue growth target to 5.8 percent by 2004 from a previous goal of 5 percent. Unilever, lagging competitors recently in strengthening the top line, should achieve 5 percent sales growth by 2002, he added. Burgmans also said the acquisition would allow Unilever to increase its operating margin goal to 16 to 17 percent by 2004 from a previous 15 percent target, set in February. At that time, Unilever unveiled a reorganization plan that aimed to increase sales growth and margins while focusing on the top 400 brands and shedding marginal ones.

Burgmans said Bestfoods' two global brands, Knorr soup and Hellmann's mayonnaise, plus the food service unit operating in 75 countries, were the main attractions for Unilever. He said the soup and mayonnaise brands would join the top tier of the combined group, becoming its number one and number four brands, respectively. The two have charted sales growth of about 7 to 8 percent in recent years with annual revenue of $2.5 billion for Knorr and $800 million for Hellmann's. Rounding off the top five brands will be Liptons teas at number two, Igloo frozen foods in third place and Bird's Eye frozen foods at five. Unilever would keep very strong domestic brands such as Skippy peanut butter, but some weaker or overlapping activities could be sold off.

Some analysts expressed concerns that Unilever management might have difficulty in coping with a major reorganization, a huge acquisition, plus two smaller U.S. takeovers announced recently: Ben & Jerry's Homemade Inc and SlimFast Foods Co. Burgmans said the Bestfoods acquisition will affect only about a quarter of Unilever. The deal, subject to regulatory approval in Europe and the United States, is expected to be completed by the end of the year.

In its deal making Unilever was persistent while Bestfoods officials remained coy throughout the process. Bestfoods was rumored to be negotiating with Diageo. Then reports surfaced that Bestfoods was close to acquiring long-ailing Campbell Soup for $15 billion. However, most observers said Bestfoods likely was using the speculation as a bargaining ploy to extract a higher offer from Unilever.

A factor adding to the apparent urgency of large food companies to purchase smaller ones has been consolidation within the retail grocery store sector. As grocery chains have merged and become larger and stronger, food companies have realized that they must keep pace in order to negotiate prices and product placement with stores on an equal footing.

Further evidence of the consolidation includes reports that Nabisco is entertaining bids from Cadbury, Danone and Nestl[acute{e}], if the cookie/cracker food empire is broken up. Nabisco Group Holdings put itself and its 80-percent stake in food company Nabisco Holdings Corp up for sale in April after rejecting an unsolicited offer by financier Carl Icahn to buy the remaining shares in April. Some 13 groups have signed confidentiality pacts with Nabisco, and French Groupe Danone and Britain's Cadbury Schweppes Plc have been reported to be preparing a joint bid for $15 billion.

While Nestl[acute{e}] has the finances to rival front-runner Philip Morris Cos., Inc. as the top U.S. cookie and cracker maker, analysts see a Nestl[acute{e}] bid for the whole of Nabisco as unlikely and counter to its focus on internal growth.