Jorge Lemann is behind some of America’s most iconic consumer brands.
The Brazilian billionaire’s investment company, 3G Capital, has backed takeovers of Kraft, Heinz, Burger King, and Anheuser-Busch.
And it isn’t likely finished.
Kraft Heinz Co., which 3G put together in 2015 after first buying Heinz and then Kraft, could strike a huge deal next year, Morgan Stanley analyst Matthew Grainger predicts.
While the Brazilian management team is expected to focus on integrating Heinz and Kraft this year, they are poised for another takeover in early 2017, he wrote in a note to clients.
“Similar to 3G’s approach in other industries such as beer, we regard its early food acquisitions as only initial steps to a long-term consolidation strategy,” he wrote.
That’s largely because Kraft Heinz has been making good progress in cutting costs and shedding its debt load.
Here is Morgan Stanley (emphasis added):
“We forecast KHC will fall below 3.5x leverage in early 2017, positioning the company for another potentially transformational acquisition… The playbook is likely to remain unchanged, with 3G management targeting a company possessing opportunities for material cost reduction and selective revenue enhancement. Our understanding of current debt markets suggest KHC could maintain its investment grade rating at 4.0-4.5x leverage in an acquisition scenario, which provides an additional $ 30-35 Bn of debt capacity on 2017 EBITDA. We estimate that, in combination with equity financing, KHC will have capacity for an acquisition over $ 100 Bn toward the second half of 2017 while still maintaining a principal ownership stake at the 3G/Berkshire collective.“
Morgan Stanley isn’t alone in its thinking. There’s been speculations of potential 3G targets after the Kraft acquisition, which include Campbell Soup Co., General Mills, and Kellogg Co.
Oreo cookie maker Mondelez fit quite well with Kraft Heinz’s portfolio, the analysts said.
Here is Morgan Stanley again:
“MDLZ has a high level of overlap with KHC’s international markets, a solid long-term topline growth profile given a sizeable emerging market business and exposure to on-trend snacking categories,and ongoing cost reduction opportunities given a margin profile that – while improved – remains less efficient than competition. In addition,a hypothetical acquisition of MDLZ could provide KHC with immediate access to legacy grocery trademark rights,allowing KHC to accelerate its international expansion initiatives around the Kraft brands which in many cases are already being manufactured in existing MDLZ facilities.”
Mondelez recently ended its bid for chocolate giant Hershey.
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