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Kraft Foods, the world’s second-largest food company, may end-up seeing eye-to-eye with its newest substantial stakeholder, Nelson Peltz, on divesting its coffee brands, sources said.
Two sources familiar with the NYSE-listed Kraft, as well as industry bankers, said that the Illinois-based company could look to sell its coffee brands, consisting largely of Maxwell House Coffee, as well as its Post cereals.
The sources familiar said that Kraft was less keen on selling its Post cereal brands, a move that they said Peltz would also likely endorse, because of difficulties in selling it, tax issues associated with a sale, and because they are hoping that profits will be less hurt by cereal-related commodity prices.
They said they did not have a much similar hope for coffee commodity prices, and that there is a less clear path for them to grow that market.
The sources said that Kraft is focused on non-North America acquisitions in their existing segments, including in sweets and snacks and convenience foods, and particularly in Mexico, Brazil, Russia, and the Ukraine.
The sources said that net revenue growth in these markets has been significant and that there is substantial room for Kraft to grow.
The sources said that Kraft could be greatly interested in acquisitions in the confectionery segment in those countries, and both they and one of the bankers said it could look at purchasing the candy business of London-based Cadbury Schweppes after it is separated from Cadbury’s drinks business.
The sources, as well as an industry banker, said that a divestiture of Post Cereals would be a challenge, as two top competitors, Kellog and General Mills, that might be willing to pay a price in the range that Kraft would likely seek, could have significant anti-trust issues due to each having a 30% plus market share.
While private equity firms like the space, according to the first source familiar with the situation, and an industry analyst, those firms have more traditionally paid in the seven to eight times EBITDA range, while Kraft’s shares overall are trading in the 11 to 12 times EBITDA range.
Additionally, according to the banker and the second source familiar with the situation, Kraft would face a significant tax bill given its current situation.
The sources said that there has been growth in deli and those areas, thought in the past by some to be divestiture candidates, were not likely to be so now.
When asked about smaller brands such as Clausson Pickles or Calumet Baking, the first source said: “Everything has been reviewed and you cannot rule out some of these, but there is no big divestiture mandate on these.”
The sources both confirmed that Peltz or entities connected with him had taken a stake in Kraft, though they said they did not know for certain it is 3%, as at least one media report has published.
The first source said he had heard that Peltz plans to ask for a meeting with Kraft CEO Irene Rosenfeld. The source said a decision on whether to agree to that request would be made once the request was made.
Peltz has been able to prod companies, sometimes without seeking any board of directors seats, to more quickly or aggressively sell or spin-off units.
The sources said there was no indication yet that Peltz or any allies of his would be seeking Kraft board seats.
Kraft has a market capitalization in excess of USD 58bn.
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