If the chatter on Wall Street is right, Kraft Foods Inc. is the latest in a line of big food companies looking to unload brands in efforts to right-size portfolios in the industry. And Chicago-based Wm. Wrigley Jr. Co. could very well be the buyer.
Talk about two companies in need of two different things. A crosstown deal could help both in a big way.
In a report about food companies refocusing their strategies, Credit Suisse First Boston analyst David C. Nelson raised eyebrows Thursday by writing that he believes Altoids and Life Savers, two of Kraft’s highest-profile candy brands, are on the block–or will be.
Furthermore, he states that Wrigley, under Chief Executive William Wrigley Jr., would be the likely buyer of the candy brands.
That’s not the only place Kraft chief Roger Deromedi may be looking to offload some of the company’s slower-growth brands. Nelson writes that much of the company’s enhancers division, which houses brands like Stove Top, Minute Rice and Shake `N Bake, could go. ConAgra is named as the likely buyer.
Also on the block may be Kraft’s license to use the Breyers brand on yogurt, Nelson writes.
Neither Kraft nor Wrigley would comment Thursday.
A deal involving crosstown food giants would surprise few. The Chicago stalwarts are studies in contrast and could use each other to regain some footing.
Kraft needs to focus on its most profitable core business, revive its new-product machine and pursue a global marketing strategy similar to the one that has helped turn around consumer products giant Procter & Gamble Co.
“We have been skeptical of major moves toward consolidation as we believe a primary reason many of the acquisitions of 2000 haven’t worked out is because the increase in breadth of portfolio has led to increased complexity and a loss of focus at many companies that have more than offset any positives from greater scale or cost savings,” Nelson wrote.
Wrigley, meanwhile, is in a different boat.
After failing to acquire Hershey Foods Corp. in a $12.5 billion deal in 2002, it needs to look elsewhere for growth. Altoids and Life Savers, though small when compared with a company the size of Hershey, could give Wrigley some needed bulk as it looks to expand and keep itself from being eaten.
Quirky Altoids would do two things for Wrigley: It would give Wrigley a boost in the expanding mint segment–a category it was slow to enter–and it would eliminate a growing threat to its core gum business.
Altoids last year entered the gum category, setting off a scramble to protect market share.
Loss of focus has become a major problem for big food companies, Nelson says, so after a period of consolidation, companies are now looking to shed assets.
Call it what you like, but the food industry game is about to get a little more interesting.
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