As 3G digests Kraft deal, rivals will focus on organic firms

Fri Mar 27, 2015 2:40pm EDT
 
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By David Randall

NEW YORK (Reuters) - The macaroni and ketchup merger of Kraft Foods Group KRFT.O and H.J. Heinz Co may prove a boon to the far smaller natural and organic food companies that have seized market share as consumers shift away from processed foods, bankers and portfolio managers said.

Brazilian private equity firm 3G Capital Partners and Warren Buffett's Berkshire Hathaway (BRKa.N: Quote) announced a $46 billion deal to consolidate the companies Wednesday, one that will create the No. 3 packaged food maker in North America after PepsiCo and Nestle USA..

Digesting that deal will likely sideline 3G, a major buyer of food companies, for the next year or two before it considers another large-scale acquisition, according to industry bankers.

That should take some pressure off bigger players, and potential targets, such as Kellogg Co (K.N: Quote) or Mondelez International Inc (MDLZ.O: Quote) and give them time to bulk up on the organic and natural brands that shoppers increasingly prefer.

"Consumer packaged goods companies are desperate to find ways to grow, and they are not seeing any growth with their products internally," said Phil Terpolilli, an analyst at Wedbush Securities.

The apparent success of General Mill's (GIS.N: Quote) $820 million acquisition of organic mac-and-cheese maker Annie's in September will likely fuel more acquisitions of similar companies, Terpolilli said. General Mills paid slightly more than four times net sales for the Berkeley, California-based company, and credited Annie's products with turning around its U.S. sales in its most recent quarter.

Coca-Cola Co (KO.N: Quote) is also likely to acquire more organic and natural competitors this year to expand its product line, said John Staszak, an analyst at Argus Research.

The burgeoning interest from big companies makes the high valuations of similar organic and natural food companies more palatable, said Matthew Weiss, a research analyst who works on several funds at New York-based Baron Capital Management.   Continued...

 
A Heinz Ketchup bottle sits between a box of Kraft macaroni and cheese and a bottle of Kraft Original Barbecue Sauce on a grocery store shelf in New York March 25, 2015. REUTERS/Brendan McDermid