Kraft's Danone Deal A Good One For Shareholders

I've been traveling this week and have not be able to find a reliable internet connection until today but wanted to affirm my positive view of Kraft (KFT) in light of the recent price decline following the company's announcement that it's buying the cookie business from Danone for $7.2 billion.

This is exactly the kind of deal KFT would not have been able to do as part of Altria (MO). I think this is a great move for KFT.

The positives:

1) International expansion - KFT's international sales were only 12% of its total before this deal. This acquisition gives the company instant exposure to key markets like Russia and China.

2) Cost savings. One analyst estimated $200 million (or $0.08 per share) in cost savings in the first year. Could be more over time.

3) Instant growth. In one fell swoop, KFT has added a considerable amount of sales and earnings to its existing business. Other synergies and cost savings could add more incremental growth because of this deal.

The negatives:

1) The price. Some analysts were saying that KFT may have paid too much for this business. I say, that really can't be measured until the businesses are fully integrated and synergies are realized. If the acquired businesses can raise the company's overall growth and/or profitability, I think it was a great deal at a great price.

2) The debt. It looks like KFT will borrow around $5 billion to finance this deal, bringing its debt to around $16 billion, which compared to its $55 billion in total assets, looks to still be a solid balance sheet.

3) Regulatory stuff. "Will the French government OK the deal?" etc. Given that both KFT and Danone have announced that this is a "done deal," I would be greatly surprised if it does not close as expected.

Bottom Line - very positive for the company; should be great for the stock over time. I am very comfortable holding KFT for the long run.

Disclosure: Author is long KFT