Kraft Is In Talks to Buy Danone's Biscuit and Cereal Unit -- FT

Kraft is in talks to buy the biscuit and cereal unit of Danone, sealing its post as the world's number-one cookie maker, according to a report in the Financial Times. Kraft has been under pressure from activist shareholder Nelson Peltz, who revealed last month he had amassed a 3% stake ($1.7 billion) in the company. Peltz has criticized the company of poor management and under-performing assets. Peltz's activism may have been instrumental in Cadbury Schweppes's American beverage unit auction and Wendy's recent move to put itself on sale. Kraft's biscuit sales were $5 billion in 2006, while Danone's biscuit and cereal division -- the smallest of its three units behind dairy and mineral-- had a €2.2 billion ($3 billion) turnover. While there are likely synergies that would result in cost-cuts, some analysts question whether Kraft will be able to buy the unit at a reasonable price. UBS analyst David Palmer predicted in a recent note that Danone may be a target for Kraft, as midsize ($10-20B) global food companies are swallowed up by larger foes. Danone shares gained 1.9% in French trading Monday morning.

Sources: Financial Times, 24/7 Wall Street, Dealscape
Commentary: Kraft Foods May Go On a Value-Creating Acquisition Spree • Kraft Foods Jumps On Reports of Peltz's 3% Stake
Stocks/ETFs to watch: Kraft Foods Inc. (KFT), Groupe Danone (DA). Competitors: General Mills Inc. (GIS), Del Monte Foods Company (DLM), Kellogg Company (K). ETFs: PowerShares Consumer Goods ETF (PRFG), Consumer Staples Select Sector SPDR (XLP), Ultra Consumer Goods ProShares (UGE)

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