Kraft Heinz Might Have Its Eyes On PepsiCo

It may seem like an unusual business combination but Kraft Heinz Co KHC, most notably known for ketchup and macaroni and cheese, could be eyeing an acquisition of the beverage and snack maker, PepsiCo, Inc. PEP — at least according to Bernstein's Ali Dibadj.

In a research report on Thursday, Dibadj argued that Kraft Heinz is expected to remain in the M&A hunt after an acquisition of Unilever plc (ADR) UL isn't going to happen. The analyst suggested that Kraft Heinz would look at other larger-cap names in either the HPC (home personal care) or food space.

Targets

Dibadj argued that within the HPC space, Colgate-Palmolive Company CL could be a top target for Kraft Heinz to acquire given its relatively stable and attractive top-line and possible benefits from cost cutting opportunities.

However, the analyst suggested benefits to Kraft Heinz's earnings per share from an acquisition of Colgate-Palmolive would be limited and the company may be better off pursuing a food company.

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Specifically, Kraft Heinz could make a play to acquire PepsiCo's entire business which could generate an earnings per share accretion of around 30 percent. Moreover, anti-trust concerns would be minimal as around 1.5 percent of PepsiCo's global sales overlap with Kraft Heinz.

Moreover, PepsiCo's CEO Indray Nooyi has opposed breaking up PepsiCo's business into various segments but the executive could be open to an acquisition of the entire company.

Finally, the analyst noted that PepsiCo's plans to cut $1 billion in costs on a yearly basis since 2012 may start to slow and this has been a crucial component of its high-single digit earnings per share growth, which may prompt PepsiCo to more seriously consider an acquisition offer.