Update on the failed 3G Bid for Unilever

At the end of February, I wrote an article about the 3G backed hostile takeover bid by Kraft Heinz for Unilever. In it, I pointed out that the two companies represent two very different styles of capitalism.

3G is known for being "lean and mean", as the Financial Times has described their approach in one article. That means deep cost cutting to boost short-term profits, which are then used to acquire and strip the costs out of another firm. In the case of Kraft Heinz the cost cutting has left the firm struggling with no growth engine.

Unilever adopts a much longer-term approach. And a much less leveraged approach. And this is what made it a takeover target for the ruthless 3G Capital. But the bid failed because Unilever has the backing of some large institutional investors.

What did not add up then was the fact that Warren Buffet, who takes pride in claiming he is a long-term investor, would be a party to 3G and their approach to capitalism. It still does not add up.

A new Financial Times article reports, "Warren Buffett defended 3G’s aggressive cost-cutting style, telling investors on Saturday that it was “pro-social” for companies to lay off staff, given that productivity gains were crucial to advancing the economy". Technically that may be true, but not in the way that 3G goes about things.

It would seem that this statement is Buffet bravado, timed to coincide with a statement by Alex Behring, the CEO of 3G the Brazilian private equity group that was, "designed to deflect criticism that the New York buyout group only cut costs and destroyed jobs", according to the Financial Times. He told the paper, “We don’t need to go anywhere that we are not welcome by shareholders in order to do a deal.”

It would also seem that the failed takeover attempt resulted in questions being asked of Buffet, and his reputation almost certainly took a hit. Buffett then claimed, in an interview with CNBC, that a misunderstanding may have led to Unilever's rejection of Kraft Heinz's merger bid because the bid was not intended as a "hostile offer," but "it may have been interpreted that way."

For these reasons, the decision to launch no new hostile bid seems to have Buffets fingerprints all over it. And, Brazilian sources I have spoken to certainly think so. They suggest such a statement would be uncharacteristic of the other parties to 3G Capital.

This is unlikely to be the end of the story, and Buffet may well come to regret his decision to be a party to 3G. But Unilever will be happy to hear that they will not be hearing from 3G again.