Kraft, Heinz Merger Offers Wider Sales For Kraft Foods

The proposed merger of Kraft Foods Group Inc KRFT with H.J. Heinz Company provides opportunity for Kraft products to extend into international markets, Morningstar analyst Erin Lash told Benzinga Wednesday.

The merger also offers attractive opportunities for cost savings, Lash stated.

In the merger proposed Wednesday, Warren Buffett's Berkshire Hathaway Inc. and Brazilian private equity concern 3G would obtain a 51 percent stake in the combined companies, with the remainder to be held by Kraft shareholders.

Kraft derives most of its sales from the U.S., while Heinz does more than half its business internationally, Lash noted.

"That's an opportunity the combined companies can use to extend the distribution of Kraft products" Lash remarked.

Besides the top-selling U.S. cheese Velveeta, Kraft makes Jell-O, Oreos, Oscar Mayer meats and Cheese-Wiz along with a plethora of other brands. Heinz sells ketchup, soups, beans condiments, frozen food, baby food and other food products.

Lash said the $1.7 billion that the companies say they'll cut annual costs by 2017 is equal to about 10 percent of Kraft's annual cost of goods sold and operating expense.

According to Lash, Heinz-Kraft would "leapfrog" The Coca-Cola Co KO, becoming the third-largest food and beverage company in North America.

With an expected revenue of about $28 billion, Heinz-Kraft will be surpassed in size in the U.S. only by PepsiCo, Inc. PEP and Tyson Foods Inc. TSN.