Nelson Peltz has put a lot of pressure on Kraft (KFT). He bought 3% of the company and fundamentally said that Kraft was not well enough run and had too many under-performing assets.
Kraft’s stock, which traded for about $34.50 through the first half of June jumped over $37 the day that it became public that Peltz was in, but its has fallen back to just above $35.
No one thinks the raider is going to go away.
The FT reports that Kraft is looking at buying the operation that is second to it in the global buscuit business, a division of Danone (DA). Kraft’s sales in the sector last year were $5 billion. The Danone operations had revenue of about $3 billion.
Analysts will probably argue that there is money to be made in cutting duplicate factories, distribution networks, and workers. That could be true. But, the question is whether Kraft can get for the Danone operations at a reasonable price.
Kraft trades for 1.6x sales. Danone trades for 2.2x revenue. So, the company’s biscuit business could easily go for $7 billion, perhaps $ 8 billion. That would be thirteen times operating income.
Big price.
Douglas A. McIntyre can be reached at [email protected].
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