Unilever (UL) Bankers Said to Urge Board to Pull Trigger on Colgate (CL) Takeover - Source

July 26, 2017 3:06 PM EDT

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In private discussions with Unilever's (NYSE: UL) board, its bankers urged the company to pursue an agreement to acquire Colgate-Palmolive (NYSE: CL) while conditions are ripe, according to a person claiming to have knowledge of the matter.

Bankers pointed out three factors that could impact the timing of Unilever’s decision, including strength in pound sterling, share price gains in Unilever, and relative weakness in shares of Colgate. The conversation centered around a potential takeover of Colgate that would be financed with 50% cash and 50% stock, the person said.

It wasn't clear if Unilever will act on the recommendation, or whether they have or plan to engage in discussions with Colgate-Palmolive in the near term.

Unilever was forced to review its strategic plan after Kraft Heinz (Nasdaq: KHC) in February dropped its bid to acquire the company following opposition from management at Unilever. At the time, Kraft-backer Warren Buffett characterized the dispute as a misunderstanding, and said Kraft was only interested in a friendly deal. However, recent speculation on Wall Street suggested Kraft could come back for Unilever. In a note to clients earlier this month, Susquehanna analyst Pablo Zuanic said he see a 75 percent chance Kraft will approach Unilever with a hostile bid.

“We think it is telling KHC has done nothing (M&A wise) for the past five months,” wrote the analyst, who continues to see Unilever as a good fit for Kraft.

For its part, Unilever has slashed expenses as part of an effort to drive profitability, and investors have taken notice. Shares surged 34% since Kraft’s approach, making Unilever less attractive as a target. Gains also provide it with additional ammunition if it chooses to pursue a stock-for-stock or partial stock takeover of rival Colgate. Meanwhile the value of the pound has clawed back losses vs the dollar following Brexit, rising from a low near 1.20 to around 1.30 – another arrow in Unilever’s quiver should it pursue an acquisition of Colgate.

Representatives for Unilever haven't responded to a request to comment on the rumor.

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