Morningstar Analyst Explains Why She Raised Kraft's Fair Value Estimate A Night Before The Deal Was Announced

Kraft Foods Group Inc

and owner of H.J. Heinz Co., 3G Capital, announced on Wednesday that both the companies would be merging to create what according to the companies will be the world's third-largest food company. Erin Lash, Morningstar analyst,was on CNBC to discuss the acquisition of Kraft and why she raised her fair value estimates a night before the deal was announced Mutually Beneficial "Obviously this is an anti [scene] transaction," Lash said. "Kraft's brand are obviously focused right now in the U.S. and so combining with Heinz provides that International distribution platform and further Kraft has been working as during [its] time an independent organization to cut costs and improve the efficiency of its operations. Something that Heinz has been undergoing over the last 2 years under the ownership of 3G Capital." Raising Fair Value Lash was asked why on Tuesday night she raised her value estimate of Kraft to $62 per share from $53, but also said in the note that this didn't included ‘ takeover premium'. She replied, "That was reflective of cost of capital assumptions, adjusting our [rate of] returns that we think investors are likely to demand overtime. So, it's more reflective of the [a weighted average of] cost to capital as opposed to any change in our fundamental expectations. Potential Acquisition Targets On other foodcompanies that can be acquisition target due to low valuations, Lash said, "Obviously there has been a lot of talks in terms of, with throughout the industry ever since Heinz was taken out 2 years ago. In terms of potential acquisition targets and other players that might make sense, industry guards from our perspective a competitor like […] Kellogg's or Campbell Soups, they are both undergoing turnaround from their core business over cereals and soups and as such don't necessarily fit this mould."