The Canadian arm of Amsterdam-based Upfield said Wednesday it has bought a 164,000-square foot industrial building at Brantford and “brings a significant investment involving the purchase of land, infrastructure improvements and equipment.”

Upfield, which formed in 2018 when consumer goods giant Unilever spun off its worldwide spreads business, now bills itself as the largest plant-based consumer products company in the world.

The Violife plant-based cheese substitute brand came to Upfield in January, when it closed a deal to take over Greek plant-based and dairy-free processor Arivia.

Upfield said Wednesday it will expand its operations onto the 17.4-acre Brantford property — while ending operations at its current Toronto processing site, at Etobicoke.

The company, which has 86 employees at Etobicoke, said it “looks forward to welcoming members of its existing workforce to Brantford,” where it also expects to generate “additional employment opportunities” between next year and 2023.

The new plant, which Upfield expects to have “fully operational” by the end of 2021, will include improvements to support the company’s expanding spreads and margarine product portfolio.

Upfield said it also plans to set up a “scaled-up manufacturing platform” that will support “new innovations” such as Violife as well as the Becel line and other spreads.

Upfield Canada president Dan Bajor, in a release Wednesday, said the Brantford expansion is part of a plan to build up its space in the plant-based foods business in Canada — and that includes introducing the Violife line in this country.

The Brantford plant, he added, will supply the Canadian consumer market but also will “support the export of Violife to the United States and eventually to markets in Latin America.”

Upfield’s Becel product lines in Canada are made with canola and sunflower oil as well as palm oil and soy extracts. Its non-vegan line includes small amounts of buttermilk, while its plant-based butter substitutes include pea protein.

Its Violife line, meanwhile, is coconut oil-based. It includes cheddar, mozzarella, parmesan and feta-flavoured products for use as non-dairy substitutes in pizza, sandwiches and other food items. — Glacier FarmMedia Network

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The business includes the brands Stork and Flora, the latter of which is sold under the name Becel in Canada and several European countries, and as Promise in the U.S.

The sale of the business officially kicked off in late September, with Unilever’s banks sending out confidential information to a series of heavyweight buyout funds which have been working on this deal since the start of the summer, the sources said.

The auction has been dominated by private equity firms which have been lured by the unit’s strong profit margins. But the valuation might prove difficult, as Western consumers cut back on bread and margarine, the sources said.

International investors have teamed up in three rival consortiums consisting of Bain Capital and Clayton Dubilier + Rice (CD+R) as part of one group, Blackstone and CVC Capital Partners as part of a rival group, and KKR joining forces with Singapore’s sovereign wealth fund GIC.

U.S. investment fund Apollo was instead looking to bid alone, the sources said.

Industry players including U.S. agricultural trader Archer Daniels Midland have decided against bidding, the sources added.

Blackstone, CD+R, Bain, CVC, KKR and Apollo declined to comment, while Unilever and GIC were not immediately available for comment.

The sale, which is led by Morgan Stanley and Goldman Sachs, could fetch as much as six billion pounds (C$9.9 billion/US$7.8 billion) and was expected to wrap up toward the end of 2017, the sources said.

In its bid to exit from the shrinking margarine business, Unilever agreed last month to exchange its spreads unit in South Africa for Remgro’s 26 per cent stake in Unilever’s South African subsidiary, a deal worth US$900 million.

The consumer giant has been working hard to boost its margins and performance after rebuffing a surprise US$143 billion takeover bid from Kraft Heinz this year.

Unilever’s underlying operating margin improved 180 basis points to 17.8 per cent in the last six months, helped by an acceleration of cost-savings programmes, and a 130-basis point drop in brand and marketing spending.

On Sept. 25, Unilever made a 2.27 billion-euro (C$3.3 billion) swoop on fast-growing cosmetics company Carver Korea in a bid to build a global beauty business.

— Reporting for Reuters by Pamela Barbaglia, Dasha Afanasieva and Clara Denina.

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Kraft had made a surprise offer for Unilever to build a global consumer goods behemoth — an offer flatly rejected on Friday by London- and Rotterdam-based Unilever, whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise.

Kraft withdrew its offer because it felt it was too difficult to negotiate a deal following the public disclosure of its bid so soon after its approach to Unilever, according to people familiar with the matter who requested anonymity to discuss confidential deliberations.

Kraft had not expected to encounter the resistance it received from Unilever, one of the people said. Some key concerns raised during talks included potential U.K. government scrutiny, as well as differences between the companies’ cultures and business models, the person added.

“Kraft Heinz’s interest was made public at an extremely early stage,” Kraft Heinz spokesman Michael Mullen said in a statement. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”

Kraft was forced to publicly disclose its offer on Friday to comply with Britain’s takeover regulations, after rumours of its approach to Unilever circulated among stock traders.

Under U.K. takeover rules, Kraft’s public withdrawal of its offer precludes it from reviving takeover talks with Unilever for six months.

A combination would be the third-biggest takeover in history and the largest acquisition of a U.K.-based company, according to Thomson Reuters data. The combined entity would have US$82 billion in sales.

The premature exposure of Kraft’s bid left the aggressive acquisition machine scrambling to craft an appetizing message for shareholders, the press, Unilever’s rank and file, and British and Dutch leaders.

Prime Minister Theresa May ordered top officials to investigate if the proposed deal posed potential threats to British economic interests, the Financial Times reported.

May has been adamant the government should be more active in vetting proposed foreign acquisitions of U.K. companies. She had previously singled out Kraft’s 2010 acquisition of another British household name, Cadbury, as an example of a deal that should have been blocked.

A deal for Unilever would have marked the next instalment of Brazilian private equity firm 3G Capital Management’s longstanding strategy of buying food companies and slashing costs.

In 2013, 3G teamed up with billionaire investor Warren Buffett to acquire Heinz and then purchased Kraft two years later. It is now the second-largest shareholder in Kraft, behind Buffett’s Berkshire Hathaway.

Unilever feared that a merger with Kraft, under 3G Capital’s relentless cost-cutting, risked eroding the value of its brands and could impede its expansion in emerging markets, which requires more investment, according to people familiar with the company’s thinking.

Unilever also saw its household products and consumer care divisions as too distinct from Kraft’s food business, the people added.

3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Kraft still hungry?

The breakdown in deal talks sparked speculation among analysts and investors about whether Kraft might attempt to purchase another large consumer goods company as a backup plan.

“We believe this announcement serves as a reminder — if needed — of (Kraft’s) interest, capacity, and commitment to pursuing large-scale M+A in a potentially near-term time horizon,” said Barclays analyst Andrew Lazar in a note.

Its bid for Unilever, where more than 60 per cent of sales come from home and personal care products, signals a willingness to make big buys outside of its historic area of focus — food — said Sanford Bernstein analyst Ali Dibadj.

He cited Colgate-Palmolive as one potential target, noting that its stock popped four per cent Friday on news that Kraft was eyeing Unilever.

However, the breakdown of the Unilever talks means that some food companies that have long been speculated as potential targets for Kraft, such as Mondelez, are still very much on the table, said an industry banker, who declined to be named because he was not authorized to speak to the press.

Low interest rates and cheap debt have fuelled big cross-border deals, marking the busiest start to the year for M+A activity on record. The bid also reflected a broader interest in UK companies as acquisition targets, in part due to the British pound, which has been under pressure since Britain announced plans to withdraw from the European Union.

Labour union representatives expressed relief that the deal talks broke down, citing concern about its potential effect on jobs and consumers.

“How many scares must the government put U.K. workers through before they actually do as they have promised, which is to make the takeover process socially responsible?” said Len McCluskey, general secretary at Unite, Britain’s largest union.

— Carl O’Donnell reports on mergers and acquisitions for Reuters from New York. Reporting for Reuters by Ismail Shakil in Bangalore, Pamela Barbaglia in London and Lauren Hirsch and Greg Roumeliotis in New York.

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3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Its investment approach has attracted backers ranging from billionaire investor Warren Buffett, who has helped bankroll all four major 3G deals, to celebrities such as supermodel Gisele Bundchen and tennis champion Roger Federer, who invested in 3G’s latest approximately $10 billion fund (all figures US$).

This relentless focus on costs, however, may end up making Kraft’s pursuit of Unilever more difficult. In rebuffing Kraft’s bid publicly on Friday, Unilever cited “strategic” in addition to financial reasons.

While sources told Reuters that Kraft believes that investing in innovation would be an important part of the combined company, analysts have begun to question whether 3G’s operational approach hinders Kraft’s ability to grow over the long term.

“We can understand how some investors could wonder if Kraft’s efficiency-centric model is as sustainable as many have believed,” Barclays analysts said earlier this month.

Kraft’s sales were down 3.8 per cent to $6.86 billion in the fourth quarter of 2016. Kraft has attributed the decline in sales to a pruning of its portfolio, as it weeds out non-profitable products. It sees tight operational management as perfectly compatible with sales growth.

London- and Rotterdam-based Unilever — whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise — defines itself as a business “making sustainable living commonplace.”

This means putting money with an eye beyond the immediate bottom line, such as products with low environmental impact and resources toward bringing safe water to under-served regions.

“(The rebuff of Kraft) makes us also wonder if Unilever’s focus on sustainability might make it very resistant to any further approach from Kraft,” said Royal Bank of Canada analyst David Palmer.

Adding to Kraft’s challenges, the U.S. consumer food company will need to either integrate or find other options for Unilever’s household and personal care (HPC) business, which makes products such as toothpaste, soaps and detergents.

“It seems plausible that the HPC piece of (Unilever) then becomes a merger partner for something 3G might do on its own in HP. In other words, this could be part one of a huge two-step process,” said Don Bilson, head of research at event-driven research firm Gordon Haskett.

Kraft, Unilever and 3G Capital declined to comment.

Management philosophy brewed at Anheuser Busch

Co-founded by Brazilian billionaire financier Jorge Paulo Lemann, 3G combined Kraft and H.J. Heinz Co in 2015 to create a company that now has a $112 billion market capitalization, and combined Burger King and Tim Hortons in 2014 in a $11 billion deal.

The 3G management philosophy was developed by Lemann and Brazilian investment bankers Marcel Herrmann Telles and Carlos Alberto Sicupira, and pioneered at Budweiser brewer Anheuser Busch InBev, the world’s biggest brewer, which they helped create through a series of big mergers.

Lemann, Telles and Alberto Sicupira made their mark at Banco Garantia, the investment bank they founded in Brazil in the 1970s. After selling it to Credit Suisse Group AG in 1998, they formed private equity firm 3G to invest in U.S. consumer names.

After 3G teamed up with billionaire Buffett to buy Heinz in 2013, they closed six factories and cut 7,000 jobs in 18 months. Operating margins jumped from 18 per cent to 26 per cent.

Lemann, Brazil’s richest man and a former tennis pro, once served on the board of Gillette, where he met Buffett, who has partnered with Lemann on Heinz and Kraft and has said he would like to do more deals.

While 3G is often seen as extreme — at Heinz they limited employee use of company printers to 200 pages per month, requiring double-sided printing — zero-based budgeting has been adopted elsewhere, such as at Oreo cookie maker Mondelez International.

— Reporting for Reuters by Michael Flaherty and Lauren Hirsch in New York.

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