By Alan Murray and Geoffrey Smith
February 22, 2017

Good morning.

Lots of reaction yesterday to my post saying that Kraft Heinz and Unilever represent the collision of two very different models of capitalism.

Jacob took on the notion that the cost-cutting fervor of Kraft Heinz’s private equity owners, 3-G, represents a “short-term” approach. “Look at how long they have held their investments,” he said. “They never sell anything.”

But while they may not sell, others noted their model forces them to voraciously buy, since the cost-cutting kills off investment and organic growth. “3G Capital has proven time and again its success at delivering dramatic cost synergies from mega CPG mergers,” says Mike Elmgreen. But the “draconian savings have led to soft top-line growth” forcing 3G to continually search for new acquisitions to fuel its growth “once the initial savings of a merger have been recognized.”

That’s a business model some folks want no part of. “Unilever is a jewel of a company in so many ways” even if recent shareholder returns is not necessarily one of them, writes Frank Thomas. Under the merger, its “amazingly unique and successful ‘sustainable life policies and plans’ would have ended up in the garbage bin.” And Rickey Ostgulen suggests that instead of holding Unilever’s Polman to a stock price standard, “why not hold Kraft Heinz to a ‘social value’ metric?”

Marcelo rejects that notion, and the whole “clash narrative” as “baloney.” “Shareholders decided, not management or culture,”he said. “The premium wasn’t big enough for shareholders to speak up.”

Finally, Sven, a Unilever fan, notes that Fortune presaged the showdown with its Kraft Heinz cover story in January and its Polman story last week. “Pure coincidence?” he asks. “Or great journalism?” We’ll take the latter, thank you very much.

By the way, one blow back from the brief-lived merger attempt may be a move in the U.K. to tighten takeover rules.

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

Good Morning, Mr. Director! Here Is Our Wish-List

Scott Pruitt was confirmed by the Senate as head of the Environmental Protection Agency and promised in his first speech to staff to give clarity to business on what it could expect from a body that appeared to show a tendency to mission creep under President Obama. A trade association for the auto industry immediately asked Pruitt to withdraw Obama-era proposals on cutting vehicle emissions through 2025. The proposals would cost the industry $200 billion over 13 years, but save drivers $1.7 trillion in fuel costs over the life of their vehicles, the last administration reckoned.
Fortune

E-Commerce Lifts Wal-Mart

Shares in Wal-Mart rose 3% after it reported a better-than-expected rise of 1.8% in holiday-quarter sales. What caught the eye most was a 29% rise in e-commerce sales, the first fruits of its $3 billion acquisition of jet.com earlier in the year. Walmart’s website now offers some 35 million different kinds of items, a fraction of Amazon’s assortment, but more than four times what it had a year ago. Elsewhere in the retail sector, Home Depot also beat expectations with a 5.8% rise in same-store sales, reflecting the effect of a strong housing market on the appetite for home improvement.
Fortune

Wells Fargo Fires Executives

Wells Fargo, blasted last year for forcing lower level employees to take the rap for its abusive sales practices, fired four mid-level executives for cause and stripped them of their unvested stock awards and their 2016 bonuses. They were chief risk officer for branch banking Claudia Russ Anderson, Arizona regional president Pamela Conboy, former LA president Shelley Freeman, and Matthew Raphaelson, head of community bank strategy. The board’s investigation into the scandal continues, and is due to be completed before the annual shareholder meeting in April.
Fortune

Heavyweights Line up Behind the BAT

The CEOs of 16 Fortune 500 companies threw their weight behind GOP plans for tax reform, including the controversial border adjustment tax. In a letter to the leadership of both parties, the CEOs of Boeing, GE, Caterpillar, Dow Chemical, Pfizer, Oracle, and others argued that the BAT would make U.S.-manufactured products more competitive abroad and at home by making imported goods face the same level of taxation. At the same time, a think-tank backed by Apple, IBM, and Intel put out a report arguing that the BAT risked neutralizing the advantages of the GOP’s proposed cut in the statutory corporate income tax rate from 35% to 20%.
Fortune



Around the Water Cooler

 

Bristol-Myers Still Hot After Jumping From Frying Pan

Shares in pharma giant Bristol-Myers Squibb jumped after The Wall Street Journal reported that activist investor and presidential advisor Carl Icahn had built a stake in the company. The report came just hours after BMS said it would add three directors to its board and buy back $2 billion of its stock to appease another activist investor, Jana Partners. BMS’s shares have fallen by 14% in the last year after its latest cancer immunotherapy drug fell short of expectations in clinical tests. Jana scored another victory yesterday, forcing Tiffany’s into accepting three new board members and greater oversight from investors in its search for a new CEO.
Fortune

Facebook Puts a Foot in the MLB’s Door

Facebook is in talks with Major League Baseball for the rights to live stream a game every week in the coming season, Reuters reported. While the social network has already streamed Mexican soccer and international basketball games, this would be its first venture into mainstream domestic sports. It looks increasingly like the thin end of the wedge for TV companies such as ESPN, which are trying to defend their traditional dominance of live sports coverage. It may also cause unease at Twitter, which was the first social media giant to tie up a sports streaming contract (with the NFL).
Fortune

Trials and Tribulations of an Internet Supervillain

Milo Yiannopoulos resigned as senior editor of the conservative news site Breitbart, as the furor over his comments on pedophilia refused to die down. Yiannopoulos said the decision was his alone, a claim that is hard to either verify or refute. However, the controversy is not what Breitbart needed at a time when major companies appear to be having second thoughts about advertising on its site. An internal memo from an Australian ad agency owned by Omnicom noted that many of its clients are specifically asking for their ads not to appear on Breitbart.
Fortune

The Air Gets Thin for Oil Bulls

How good can it get in the shale patch? Crude oil prices have been on a tear recently, hitting 18-month highs at the start of the week on hopes that OPEC and other big producer countries will extend their November deal on output cuts. The deal has worked like a charm so far, raising prices by over 25% and giving much needed relief to strained budgets. Those are all good reasons for producers not to cheat on the deal and overproduce (OPEC says compliance is over 90%). The side-effect has been that U.S. producers are now fast adding drilling rigs and raising their own output. This wouldn’t matter if demand were rising fast enough to rise to absorb the extra barrels. But with U.S. gasoline stocks back at record highs and at least three refiners cutting production runs, it’s not clear that that’s happening yet. Given that hedge funds have accumulated record long positions, the market may be vulnerable to an abrupt correction on any sign of OPEC’s discipline cracking, or weaker U.S. demand.
Fortune

Summaries by Geoffrey Smith Geoffrey.smith@fortune.com;

@geoffreytsmith

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