Kraft Foods may soon be acquired by 3G Capital fund
Le Monde.fr | | By Stéphane Lauer (New York, correspondent)
"It is clear that our world has changed and consumers have changed, but our group has not changed enough." John Cahill, the new CEO of Kraft Foods had called the maneuvers on February 12 for his first presentation of results since his appointment in December 2014. But no one then thought that the food giant, which runs through a difficult period , was for sale. A month and a half later, the group is actually about to be bought by the Brazilian fund 3G Capital, according to sources close to the case cited, Tuesday, March 25, the Wall Street Journal.
Kraft Foods, a major grocery manufacturers in North America, is currently valued on the stock market at $ 37 billion (33.8 billion euros). The operation could be carried out on a basis of 40 billion, sources said.
The group was formed by the split of the former Kraft foods Inc., which split into two entities: Mondelez, which brings confectionery and snack brands internationally (Oreo, Ritz) and Kraft foods, therefore, which manufactures such as cold cuts (Oscar Mayer), coffee (Maxwell House), cheese (Philadelphia, Velveeta) or peanut butter (Planters), all kinds of products for the North American market.
For its part, 3G Capital has become over the years a major player in the global food industry. Its co-founder, Brazilian billionaire Jorge Paulo Lemann was one of the main shareholders of the InBev brewery before it redeems Anheuser-Busch in 2008 to make it the industry leader with global brands such as Budweiser, Corona, Leffe or Stella Artois. In 2010, 3G Capital bought fast food chain Burger King. Three years later, the fund teamed with US investor Warren Buffett to get their hands on the Heinz ketchup for $ 23 billion. Finally, again in partnership with M.Buffett the group via Burger King, bought in 2014 Tim Hortons Canadian coffee chain for $ 11 billion.
Kraft in difficulty
The ongoing negotiations between 3G Capital and Kraft Foods are at an advanced stage, but there is no guarantee that they lead. The fund had recently raised $ 5 billion in order to make new acquisitions.
This operation is launched, while Kraft is experiencing difficulties. The group announced in February a loss of $ 398 million for the fourth quarter of 2014. For the full year, profits have shrunk from 62% to $ 1 billion, mainly due to higher prices of raw materials and employee retirement related expenses. As for revenue, it remained stable at 18 billion, which resulted in market share losses on about 40% of its portfolio.
Kraft Foods suffers from being positioned on the aging brand image that respond less to the tastes of American consumers. They indeed look more fresh, deemed good for health and compounds and better ingredients. To distance with an image of "junk food", which sticks to some of its products, the group has taken in recent months a number of initiatives such as the removal of artificial colorings in some dishes like his macaroni and cheese , or even the creation of a label "Kids Eat Right" (children eat healthily).
But as M.Cahill recognized during the presentation of the results in February, the group's efforts are insufficient in terms of quality, marketing and innovation.The new boss, who replaced Tony Vernon in December 2014, should have a strategic plan in the second quarter.
Meanwhile, the staff of the group was substantially revised. The CFO, Teri List-Stoll, has just left his post as marketing director and responsible for innovation and quality. To date, all positions are filled.
"We have a wonderful brand, but they are not all on an equal footing," said M.Cahill, adding, "Our priority is to make them work." Waiting to convince customers, Kraft Foods was visibly persuasive enough to generate interest 3G Capital. But it is possible that the fund does not discuss only marketing and innovation with the direction of Kraft. 3G Capital has indeed accustomed to have strong expectations in terms of cost reduction. Since its acquisition, and Heinz had to part with a thousand employees. If the operation were to materialize, Kraft needs to prepare for a more frugal operation.
- Stéphane Lauer (New York, correspondent)
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