What Wall Street Thinks Of The Kraft Heinz Merger

H.J. Heinz and Kraft Foods Group Inc KRFT announced on Wednesday that they will merge in a deal that will create the fifth largest food and beverage firm in the world and the third largest in North America.

"This is my kind of transaction, uniting two world-class organizations and delivering shareholder value," Berkshire Hathaway Chairman and CEO Warren Buffett said in a statement. "I'm excited by the opportunities for what this new combined organization will achieve."

What's The Street Saying?

Several Wall Street firms gave their opinions on Kraft:

1. Deutsche Bank: Eric Katzman wrote, "Combined with Heinz's FCF, low cost financing, and supportive investors, we don't see funding as an impediment to 3G moving forward…We aren't surprised by this news and have noted on numerous occasions that 3G/Buffett, via their investment in Heinz, were likely to come back and continue the roll-up of the industry."

2. JP Morgan: Ken Goldman wrote, "Last night, The Wall Street Journal reported that privately-held 3G is in "advanced talks" to buy KRFT "through its H.J. Heinz Co. unit."

3. Citi: David Driscoll wrote, "In our opinion, a deal, must be centered on a dramatic cost cutting opportunity as the potential valuation looks extremely lofty. To a degree, Kraft's vast center of the store portfolio could help 3G's Heinz better leverage costs and generate synergies. Moreover, within the current Kraft business there still is an opportunity improve productivity and streamline costs to transform it into a low cost producer. However the spread between Kraft's gross margin and total operating margin is among the lowest in the packaged food group, and thus it appears to us there is simply not a lot of fat for someone to cut on the SG&A side."

4. Morgan Stanley: Matthew Grainger wrote, "the recent CEO transition from Tony Vernon to John Cahill was accompanied by more aggressive commentary regarding a willingness to "accelerate the pace of change" and "take a fresh look at the business," and – as the Heinz model has demonstrated – it appears that rapid change for packaged food companies can be much more rapidly achieved in a private context. Finally, despite Kraft's relatively "lean" overhead cost structure, we believe the company continues to offer a compelling opportunity to better leverage its peer-leading scale and improve its below-average gross margin outlook in the coming years, which could enhance its strategic attractiveness..."

5.Bank of America Merrill Lynch: Bryan Spillane wrote, "There are several key factors to consider including: A KRFT/Heinz combination in our view would heighten the sense of urgency for companies to address portfolios and cost structures; and over time there could be weakness in stocks that had been previously mentioned in the press as potential takeout targets... Actions and indications from KRFT management over the past 6 months have suggested robust strategy changes and 3G recently raised a $5 billion blind investment pool."

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