If Warren Buffett likes ketchup together with his mac ‘n’ cheese, it’s probably less concerning the taste and more because he thinks there isn\’t any end in sight for the market’s appreciation of the consumer food sector.
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The Oracle of Omaha’s Berkshire Hathaway Inc. on Wednesday partnered with Brazilian private equity firm 3G Capital Partners LP to purchase Kraft Foods Group Inc. and merge it with H.J. Heinz Co.
The companies didn\’t disclose the need for the cash-and-stock deal, but investors on Wednesday pushed Kraft shares up 35% to some market value of US$48.8 billion.
Once the deal is completed, Kraft Heinz Co. will end up the third-largest food and beverage company in The united states with revenues of approximately US$28 billion along with a slew of popular brands which includes everything from Heinz ketchup to Jell-O.
It also continues the current large-scale consolidation trend in the food sector.
Last year, global food products giant General Mills Inc. swallowed up Annie’s Inc., one of the world’s largest organic and natural food producers, in a 37% premium, and Tyson Foods Inc., the largest meat processor by volume in the U.S., bought Jimmy Dean sausage maker Hillshire Brands Co. in a US$7.7-billion deal in a 70% premium.
The reasons for the feeding frenzy are myriad: a vastly improved U.S. consumer base, beneficial tax considerations, opportunities for operational improvements and Wal-Mart-like massive pricing powers.
As an effect, consumer staples information mill now a popular pick-up for more than just Mr. Buffett. Their stability and dividends amid a slow-growth, low interest rate environment are fueling industry and investor appetites to put packaged food companies in their cupboards, as are M&A trends.
After Berkshire bought Heinz in 2013, the typical food stock outperformed the marketplace right away. Some, for example Campbell Soup Co., rose a lot more than 20% in a two-month period.