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Could Kraft Heinz be ready for more big buys?

February 29, 2016
Food & Drink

Could Kraft Heinz be ready to gobble up another big food company?

Analysts seem to think so. While many Wall Street analysts praised the company’s results and its cost cuts, several speculated that Kraft Heinz could be ready to buy another food company soon.

RBC Capital Markets analyst David Palmer said that Kraft Heinz’s balance sheet is stronger than either company’s balance sheet pre-merger. For that reason, he argues Kraft Heinz could be in a position to acquire another large company by late 2016 or 2017 based on what the company’s debt load will be then. Kraft Heinz could also issue stock to acquire a big competitor.

The best bet for Kraft Heinz is to buy a company with a major presence outside the U.S., Mr. Palmer says. He points to Mondelez International as the best option to help Kraft Heinz achieve international scale.

Mr. Palmer isn’t the first to suggest such a deal. Speculation about a potential tie up between Kraft Heinz and Mondelez heated up after activist investor William Ackman unveiled a $5.5 billion stake in Mondelez. Mr. Ackman’s investment thesis was predicated on Mondelez becoming a target in a wave of food-industry consolidation.

But soon after Mr. Ackman made his investment public, Warren Buffett, who owns half of Kraft Heinz and could be look to to finance a bid, threw cold water on the idea that he’d be involved in a deal for Mondelez any time soon.

A deal with Mondelez, or any big food company, is unlikely in the near term, Mr. Buffett told CNBC:

“At Kraft Heinz, we have our work cut out for us for a couple of years,” he said. “Frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all the work needed at Kraft Heinz.”

Yet such a deal would be a reunion of sorts. Kraft was spun off in 2012 from the former Kraft Foods Inc.. That company changed its name to Mondelez International Inc. Mr. Palmer notes that a purchase of Mondelez would give Kraft international distribution synergies because the majority of its international brand rights are licensed to Mondelez until 2022.

Spokesman for Kraft Heinz and Mondelez declined to comment on potential M&A.

Kraft Heinz’s owners and the architects of the Kraft Heinz deal, 3G Capital Partners LP, is known for buying up food companies and combining them. In 2013, 3G teamed up with Warren Buffett’s Berkshire Hathaway to buy Heinz for $23 billion.

By Maureen Farrell

Source: Wall Street Journal

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