New tack needed at Kraft: analysts

Acquire, slash costs, repeat. Billionaire investor Warren Buffett and buyout firm 3G Capital’s failed $143 billion bid to combine their food conglomerate Kraft Heinz with Unilever shows their winning formula now needs some tweaking.

Buffett and 3G built Kraft into the world’s fifth-largest food and beverage company through acquisitions followed by a relentless drive to boost profit margins. While this savings-driven business model wowed industry observers, it appears to be reaching its limits, with Kraft’s sales stagnating and margins flattening.

Investment bankers and industry analysts now say Kraft is more likely to pursue another company with a big, growing home and personal care business, rather than a peer in the food sector that would require it to repeat the same M&A cycle a couple of years later.

“Perhaps Kraft will now acquire another medium-sized US food company, like General Mills, Kellogg or Mondelez.

“But after three years this M&A ‘beast’ will need to be fed once again, and the number of attractive US targets is getting smaller,” Sanford C. Bernstein wrote in a note on Monday. Kraft declined to comment. Investors are already adjusting bets.

Shares of Unilever peers Colgate-Palmolive, Clorox and Church & Dwight rose 4.3 percent, 2.8 percent and 1.6 percent, respectively, on Friday, on hopes of them being acquisition targets.

Conversely, General Mills, Kellogg and Mondelez shares fell on Friday as investors saw the chances of being acquisition targets for Kraft decreasing. analysts their