BMO Capital analyst Kenneth Zaslow published a note last week suggesting Kraft (NYSE: KRFT) should consider spinning off some segments in order to unlock value.

Among Zaslow's reasons, the number of "natural buyers" standing ready to acquire specific segments of Kraft’s food stable. He felt Kraft could realize $30 billion from businesses representing just $2.1 billion of EBITDA.

Divisions ripe for spinoff included cheese, refrigerated meats, coffee and Planters.

Related Link: Keurig's Kraft Deal Seen 'Modestly' Boosting EPS, Sales


Canadian dairy company, Saputo was named by Zaslow as one company that might be interested in acquiring Kraft's cheese business.

According to Zaslow, Saputo President Lino Saputo said recently, "When I think about medium and large (acquisitions), they could be perhaps new platforms in new countries."

Admitting Saputo might be reluctant to take on an acquisition of that size, he said BMO estimated such a deal would be "accretive to earnings and create material long-term growth opportunities."

Noting that dairy companies have been battling global conditions and each other for growth, resulting in the need for mergers and acquisitions in the space, Dairy Herd Management said Saputo was now in eighth place on the Rabobank survey of the "Top 20" global dairy companies. Much of Saputo's recent success has come from acquisitions.

Refrigerated Meats

CNBC’s Jim Cramer in June spoke about Kraft’s "hidden value" as a company that is accustomed to spinning off segments. Cramer said he thought the loser of the Hillshire Farms (NYSE: HSH) bidding war, which turned out to be Pilgrim’s Pride (NASDAQ: PPC), "would love Oscar Meyer."

Zaslow echoed Cramer in his note saying, "JBS/PPC, in our view, maintains a compelling interest in KRFT’s Refrigerated Meats business given its interest in gaining greater retail presence, reducing the volatility of its underlying businesses, and generating supply chain efficiencies."


When Mondelez (NASDAQ: MDLZ) and D.E Master Blenders said in May they would combine their respective coffee businesses to form Jacobs Douwe Egberts, speculation about potential acquisitions by the proposed new coffee giant began.

It was no surprise then that Zaslow said, "Jacobs Douwe Egberts or Joh A Benckiser, in our view, would make the most strategic and financial acquirer of KRFT’s coffee business."


As far back as 2011, Credit Suisse suggested Kraft might be interested in spinning off its Planters division, perhaps selling it to ConAgra (NYSE: CAG).

Zaslow sees a different suitor mix, suggesting Mondelez, Hershey (NYSE: HSY) or Pepsico (NYSE: PEP). According to Zaslow, Kraft could sell to any of them for a premium price.

Related Link: UPDATE: Deutsche Bank Downgrades Kraft Foods

The Whole Enchilada

One option also hinted at would be the acquisition of all of Kraft Foods Group by Berkshire Hathaway’s (NYSE: BRK-A) Warren Buffett.

Buffett’s assertion on May 3 that he would welcome another large deal with 3G Capital similar to the acquisition of H.J. Heinz last year, gave rise to speculation about what the next big deal would actually be.

Bloomberg included Kraft in a group that might appeal to Buffett based on criteria he looks for. The criteria include "simple" business models that Buffett understands and "good" returns on equity with consistent earnings.

All this led Nudge Capital’s Mark Bronzo to say, "Kraft actually makes a lot of sense to me because it's like a Heinz. It pays a big dividend, it's a generator of cash, and now it has become a domestically focused company."

At the time of this writing, Jim Probasco had no position in any mentioned securities.

Related Articles
  1. Stock Analysis

    How Much Coca-Cola Spends on Advertising

    Learn about Coca-Cola's ad spending and why the company has decided to spend the amount of money it does. Understand comparable companies and industries.
  2. Investing

    Welcome Back, Volatility

    Volatility is likely to resurface as the Federal Reserve gets closer to adjusting its monetary policy stance, even if that adjustment is a measured affair.
  3. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  4. Investing

    Why Are Consumers In Hesitation?

    Diverging monetary policy globally and a stronger dollar continued to be key drivers of the recent underperformance and last week’s tumble in U.S. stocks.
  5. Economics

    Bulk Shipping Companies Struggle As Markets Soften

    The "soft" dry bulk shipping market that confronts shipping companies is a result of lower demand from China, and an excessive amount of bulk ships.
  6. Stock Analysis

    Sierra Wireless Benefits From These Megatrends

    We take a closer look at how Sierra Wireless' transition from 2G to 3G and 4G technologies, has impacted its business today, and the future expectations.
  7. Stock Analysis

    3 Growth Opportunities For ARM Holdings

    ARM Holdings highlighted several growth opportunities in its most recent roadshow presentation. Here are three of the large opportunities it talked about.
  8. Stock Analysis

    Is Cheniere Energy Still On Track For 2016?

    The energy boom in the U.S. has opened up a huge range of opportunities in the oil and gas industry.
  9. Stock Analysis

    What’s The Key To Costco’s Extraordinary Success?

    Costco has been one of America's most successful companies: It's growing, efficient, profitable and its long-term shareholders have benefited a windfall.
  10. Stock Analysis

    Can American Capital Agency Maintain Its Dividend?

    Dividend investors know that real estate investment trusts with REITs that invest in mortgage-backed securities produce double-digit dividend yields.
  1. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  2. Core Durable Goods Orders

    New orders for U.S. core durable goods, which are the total durable ...
  3. Investopedia

    One of the best-known sources of financial information on the ...
  4. Market Depth

    The market's ability to sustain relatively large market orders ...
  5. Closing Tick

    The difference between the number of stocks that closed higher ...
  6. Institutional Brokers' Estimate ...

    A system that gathers and compiles the different estimates made ...
  1. What is the long-term outlook of the metals and mining sector?

    An industry agency council was established by the World Economic Forum in 2014 to serve as an advisory board on the future ... Read Full Answer >>
  2. What is the railroads sector?

    The railroads sector is comprised of publicly traded stocks for companies that operate railroad tracks and/or trains. Railroad ... Read Full Answer >>
  3. Who are Amgen Inc.'s (AMGN) main competitors?

    Biotech giant Amgen Inc (AMGN) bills itself as one of the first biotechnology firms. It was founded in 1980 and has grown ... Read Full Answer >>
  4. What's the most expensive stock of all time?

    Back in late August 2012, Apple’s (AAPL) stock price reached nearly $700 per share. The stock has since split but has yet ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!