By Jonathan Ratner, Senior Staff Writer, Financial Post: If Warren Buffett likes ketchup with his mac ‘n’ cheese, it’s probably less about the taste and more because he thinks there is no end in sight for the market’s appreciation of the consumer food sector. The Oracle of Omaha’s Berkshire Hathaway Inc. on Wednesday teamed up with Brazilian private equity firm 3G Capital Partners LP to buy Kraft Foods Group Inc. and merge it with H.J. Heinz Co. The companies did not disclose the value of the cash-and-stock deal, but investors on Wednesday pushed Kraft shares up 35% to a market value of US$48.8 billion. Once the deal is completed, Kraft Heinz Co. will become the third-largest food and beverage company in North America with revenues of about US$28 billion and a slew of popular brands that includes everything from Heinz ketchup to Jell-O.
It also continues the recent large-scale consolidation trend in the food sector.Add in the pressure that rivals are feeling to bolster their offerings, and even struggling names such as Campbell, Mondelez International Inc., Kellogg Co., ConAgra Foods Inc. and General Mills Inc. should get a boost. Campbell, for example, was viewed as a possible 3G target before it took on Kraft, and it could be again given the possible synergies with Heinz. Snack food giant Mondelez, which spun off Kraft in October 2012, is also a potential target as the maker of Oreo, Cadbury and Trident could eventually be reunited with Kraft’s global grocery brands to give Heinz’s international business some needed scale.
“What we do see going forward is a bit of an uptick in M&A… and I don’t see Kraft as the only big piece of news for the rest of the year,” said Jonathan Morgan, deals analyst at The Edge Consulting Group.
He noted that two out of every 10 U.S. spinoffs are acquired after being listed for two years, as is the case with Kraft, because a U.S. Securities and Exchange Commission rule allows such deals to be tax-free at both the corporate and shareholder level. One name in the U.S. consumer goods sector that Edge Consulting believes is a prime candidate to be taken out is WhiteWave Foods Co. The health-food maker was spun off from Dean Foods Co. in May 2013.