Unilever, whose brands include Marmite and PG Tips, has strongly rejected a takeover bid from US giant Kraft Heinz.
The UK-based household goods maker said it saw “no merit, either financial or strategic” in Kraft’s offer, worth about $143bn (£115bn).
But Kraft, which makes Heinz ketchup, indicated it would continue working on a deal, sending shares in Unilever surging more than 11% in London.
The deal would be one of the biggest in corporate history.
It would combine Unilever’s dozens of household names, including Ben Jerry’s ice cream, Dove soap, and Hellmann’s mayonnaise, with Kraft’s own wide range, including Philadelphia cheese and Heinz baked beans.
Anglo-Dutch giant Unilever said the offer from Kraft “fundamentally undervalued” the company.
“Unilever does not see the basis for any further discussions,” it added.
Kraft, which is part-owned by US billionaire Warren Buffett, said it had made “a comprehensive proposal” and looked “forward to working to reach agreement on the terms of a transaction”.
With so many brands, a combined Kraft-Unilever would be in a stronger position to raise prices, said Neil Wilson, an analyst at London broker ETX Capital.
“The combined entity would have a huge brand footprint and be able to flex bargain muscles even more with supermarkets,” Mr Wilson said.
Analysis by BBC business correspondent Jonty Bloom
Unilever-Kraft: When does ‘no’ mean ‘no’?
Takeovers are like those strange mating rituals you see on Planet Earth narrated by David Attenborough.
Kraft Heinz has approached Unilever about getting together and making an even bigger business with a huge family of brands.
Unilever has spurned the offer and is looking aloof, saying not only the proposal was too cheap but also that it “sees no merit, either financial or strategic….Unilever does not see the basis for any further discussions”.
Quite a slap in the face you might think but faint heart ne’er won fair hand. If Kraft Heinz offered a lot more money it might look a bit more attractive to Unilever.
Although whether the competition and takeover authorities would bless the union is another matter.
It would create a behemoth that could dominate many consumer sectors from food to soap and might stifle competition; many societies have rules against that kind of relationship.
Competition regulators were likely to scrutinise any deal to combine the two companies, analysts said.
“It could come up against a number of hurdles as it would create a giant in the sector. EU regulators in particular could be against it,” Mr Wilson said.
Unilever clashed with UK supermarket Tesco in October over its attempts to raise prices to compensate for the steep drop in the value of the pound.
‘Test the water’
Kraft’s offer was at an 18% premium to Unilever’s closing share price on Friday, Unilever said.
The 11% rise in Unilever shares after the companies’ announcements suggests investors are not convinced the deal will happen. Kraft shares rose 7% in early trading on Wall Street.
Still, analysts said Kraft was likely to return for another offer for Unilever, one of the biggest firms on the UK’s FTSE 100 share index.
“With Kraft Heinz saying it’ll be coming back to the table, it looks like the initial offer was just to test the water,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
Mr Buffett’s investment fund Berkshire Hathaway and Brazilian private equity firm 3G are major investors in Kraft.
Kraft merged with Heinz in 2015 to create one of America’s biggest food companies.
In 2010, Kraft bought Cadbury for £11.5bn, but it no longer owns the UK chocolate maker after spinning it off in a company called Mondelez.