A statement from Kraft-Heinz said it had made "a comprehensive proposal to Unilever about combining the two groups to create a leading consumer goods company with a mission of long-term growth and sustainable living".
But in a statement published on the London Stock Exchange, Unilever said the offer of $50 (€47) a share “fundamentally undervalues Unilever”.
It represented an 18% premium to the share price at close of business yesterday (16 February) and valued Unilever at $143bn (€134bn).
“Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders.
“Unilever does not see the basis for any further discussions,” it added, recommending its shareholders take no action.
At the time of publication, Unilever shares had jumped +13.16%.
In accordance with Rule 2.6(a) of the trading code, Kraft Heinz has until 5pm today to either announce a firm intention to make an offer for Unilever or that it does not intend to make an offer.
“There can be no certainty that any offer will be made nor as to the terms on which any such offer might be made,” said Unilever.
According to data from Euromonitor, Unilever is the fourth biggest packaged food company in the world, while Kraft Heinz is number five.
Raphael Moreau, food analyst at Euromonitor International said: “Although there was little incentive for Unilever to accept this initial merger offer, Kraft Heinz and 3G Capital’s willingness to pursue a deal could ultimately encourage Unilever to seek a deal to offload some of its food brands, to which Kraft Heinz would seek to apply aggressive cost reductions."
Unilever's brands include Hellman's mayonnaise, Knorr stock cubes, Ben & Jerry's ice cream and Marmite, while Kraft Heinz owns Heinz ketchup, Kraft macaroni and Philadelphia spreads.
“While creating synergies in sauces and soups could be a rationale for such a deal, a combination of Heinz and Hellmann in mayonnaise could struggle to be given approval by competition authorities. Its search for a mega-merger could see 3G Capital settle for a smaller deal under which group synergies would be more achievable," added Moreau.
Britain's largest union Unite urged Unilever to resist the "predatory takeover".
Unite national officer Rhys McCarthy said: “Kraft Heinz and their backers’ reputation for cost cutting, we believe, will lead to great brands being harmed through job cuts and a never ending drive to push costs down.
“This takeover bid, is we fear, driven by a desire for a growth in sales, not through product innovation and maintaining great brands, but by gobbling up a major competitor and slashing costs to generate a quick buck.
“Unite does not believe this takeover is either in Kraft Heinz workers’ interests or those of Unilever and that ultimately it will lead to jobs losses and poorer products for consumers.”