Kraft Foods says takeovers not easy
PARIS (Reuters) - The head of the world's second-largest food company, Kraft Foods, said Wednesday it would be difficult to make large acquisitions ahead of its full spinoff from majority owner Altria.
"Very large acquisitions will be difficult as the Altria situation precludes acquisitions using a lot of stock," Kraft Chief Executive Officer Roger Deromedi told Reuters in an interview.
He declined to define the size of a "very large" acquisition.
Altria (Charts), which owns cigarette maker Philip Morris and almost 87 percent of Kraft, needs to clear a number of legal hurdles regarding tobacco litigation in the United States before it can spin off Kraft completely.
Analysts have speculated that Kraft (Charts) might look to buy France's Danone or Britain's Cadbury Schweppes to expand out of its North American heartland, which still accounts for 68 percent of group sales.
Kraft, the group behind Maxwell House coffee, Oreo cookies and Philadelphia cream cheese, has not made a big acquisition since buying Nabisco in 2000, when it was fully owned by Philip Morris, but says it is looking to expand in its four key category areas.
Kraft, second only to Swiss-based Nestle in the food world, makes 55 percent of its sales from coffee, cheese, cookies and beverages and says it is looking to expand these businesses around the world.
"We are focused on our global core areas and acquisitions in these areas," said Deromedi, adding that the group would gain "greater flexibility" to make acquisitions once the spinoff from Altria was complete.
Altria is currently clearing legal hurdles to avoid any tobacco litigation risk attaching to a newly spun-off Kraft, and analysts believe the earliest this process could be completed and Kraft floated off would be later this year.
Deromedi declined to comment about possible acquisition targets such as Danone and Cadbury or its interest in Britain's privately owned United Biscuits (UB), in which it has a 25 percent stake alongside three private equity owners.
Analysts have highlighted that Kraft might be attracted to Danone's range of dairy products, cookies and bottled water or Cadbury's chocolate, though most talk late last year surrounded a possible bid for Danone from PepsiCo (Charts).
In Europe, Kraft's business is largely focused on coffee, its regional chocolate business Suchard, and some cheese, and though Deromedi is looking at organic and acquisition-led growth, he sees Europe as a challenging market with poor economic growth, a tough retail environment and high company valuations. "Valuations in Europe are high, as a lot of private equity groups have flooded the market," he said.
Within the European Union, which accounts for 20 percent of Kraft's global sales, Deromedi said its Suchard chocolate business, which also makes Milka and Toblerone, was not for sale, and it was using the business to help its cookie operations with innovations such as new chocolate Oreo products.
Sources close to the UB auction say Kraft has teamed up with UK partner Premier Foods and Dutch private equity group NPM Partners to bid up to $4.2 billion for the maker of McVitie's biscuits, Jaffa Cakes, Hula Hoops and McCoy's crisps.
Kraft has its eyes on UB's southern European business, which makes Kraft's Oreo cookies under license, the sources said.
"We will sort out our strategic options over time," Deromedi said, referring to the UB situation.
In developing markets outside North America and the European Union, Deromedi hopes over the next few years to increase sales to 20 percent of the group's total from 12 percent, with strong growth seen in eastern Europe last year, especially in Russia, where sales were up 40 percent.
