U.S. markets open in 15 minutes
  • S&P Futures

    3,812.75
    -4.00 (-0.10%)
     
  • Dow Futures

    31,270.00
    +34.00 (+0.11%)
     
  • Nasdaq Futures

    12,654.75
    -27.00 (-0.21%)
     
  • Russell 2000 Futures

    2,200.70
    -5.10 (-0.23%)
     
  • Crude Oil

    62.45
    +1.17 (+1.91%)
     
  • Gold

    1,713.70
    -2.10 (-0.12%)
     
  • Silver

    26.12
    -0.27 (-1.01%)
     
  • EUR/USD

    1.2045
    -0.0022 (-0.18%)
     
  • 10-Yr Bond

    1.4860
    +0.0160 (+1.09%)
     
  • Vix

    26.15
    +2.05 (+8.51%)
     
  • GBP/USD

    1.3969
    +0.0016 (+0.12%)
     
  • USD/JPY

    107.4400
    +0.4380 (+0.41%)
     
  • BTC-USD

    49,545.86
    -2,577.98 (-4.95%)
     
  • CMC Crypto 200

    992.94
    +5.73 (+0.58%)
     
  • FTSE 100

    6,651.16
    -24.31 (-0.36%)
     
  • Nikkei 225

    28,930.11
    -628.99 (-2.13%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Three reasons why you might see more deals in big food

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

With Kraft Heinz reportedly being close to selling its iconic Planters brand to Hormel for $3 billion, Yahoo Finance Editor-at-Large Brian Sozzi goes over some of the most recent biggest deals in the food space and the driving factors behind these mega transactions.

Video Transcript

[MUSIC PLAYING]

MYLES UDLAND: All right. Welcome back to Yahoo Finance Live. Myles Udland here in New York. Stocks turning red on this Wednesday morning.

We have of course, been talking about everything happening with Amazon and Alphabet, GameStop, all the exciting news in this market, but a deal yesterday that maybe flew under the radar is Hormel acquiring the Planters brand from Kraft Heinz. Brian Sozzi, I know you love deals and you also love big food. How are you thinking about this one and maybe the future of what we could see in this space?

BRIAN SOZZI: This deal, worth noting, right now this deal is still in the works. Hormel declined to comment to me on this, but I wouldn't be surprised to see this deal done before the big food CAGNY Conference coming up in two weeks. But anyway, yes. So, I went back and I went into our treasure trove of the 1,000 CEOs that we've talked to here on the 9:00-11:00 hour over the past six months.

And also, we talked to Kraft Heinz CEO, Miguel Patricio, in September on their investor day and he told us that, hey, you know what? We're going to break up our company. We're going to sell brands that don't make sense. Here's what he said.

MIGUEL PATRICIO: We unveiled what we are doing and how we see the future. And part of it is exactly to focus on good parts of the business that are either doing very well that, we can accelerate the growth, or parts that are not doing as well, but we believe that we can rejuvenate. So, it's either in the United States or all across the globe. So, this divestment is part of exactly the strategy to make us a better fit for the growth that we will have.

BRIAN SOZZI: In that interview, guys came on-- when on the day that Kraft Heinz announced they would sell their natural cheese business for $3.2 billion. But if you take a step back, it's really it's going-- it's unsurprising if we see more big food deals over the next couple months. First and foremost, the stock prices are lagging.

You have a General Mills, a Kellogg, Pepsi, Coke, Hormel, Kraft Heinz, Campbell's Soup, Conagra. These stocks have been lagging the broader market over the past six months. And I think there are a lot of people out there on Wall Street looking for that next leg of growth. And a lot of analysts that love to crunch these numbers on these companies, they love it when they spin off brands. They just love it.

They get that money. And if Kraft Heinz were to sell this business, Planters, really, over the past six months, they will have raised over $6 billion to put towards some of their stronger performing brands, stock buybacks, or you name it. Number two, I think you have a lot of food companies thinking about how to prepare for the next pandemic. Certainly grim news, but I think that's what a lot of leaders right now, they're trying to plan for the next 10, 15, 20 years.

And one line of thinking here, is they either could put more money in making bigger bets. On the case of Hormel, maybe they go out and buy a Planters and they reinvest in that business, which arguably has been under invested in by Kraft Heinz, because of its financial struggles the past few years. Or two, if you're another company, you invest in more capacity to meet a potentially-- really, another spike in demand if we have another health crisis in this country or around the world.

And last but not least, you have companies I think trying today to cut costs out of their business. You Know, I was really-- I was rereading the Amazon earnings release this morning and they had $4 billion in COVID related costs last year. And that's something you're seeing across many companies right now, where a lot of these costs they saw, they have seen because of the pandemic, they're sticking around. And that's causing a lot of companies, specifically in big food, which have been growing slow the past few years, they're trying to find ways to cut costs. A great way to do that is essentially selling a big, giant business in the likes of Kraft Heinz trying to sell planters.

MYLES UDLAND: You know, Soz, why do you think that a company like Hormel would want to bring in another brand, given that you are kind of outlining this world where investors are pleased to see a disposition of brands? And why isn't it-- And I guess it could change, right? As you noted, it's a report that this is in the works, but why isn't it a PE firm or some outside investor who wants to come in and say, we'll just deal with Planters on its own Instead of another kind of food conglomerate, saying we'll take on this brand?

BRIAN SOZZI: Yeah. I just think a lot of these PE players, there's just other opportunities in this market. Why not go bid on a spec and potentially bring the next big food brand to market? But if you're a Hormel, you are no stranger to doing deals. You had CEO Jim Snee at Hormel right now, he bought the Smokehouse Farm brands last year for $270 million.

Before that, Hormel spent $775 million to buy Applegate Farms. So, at least in terms of Hormel, there's a DNA of them doing pretty large acquisitions. And they're a player in the snacks business and they own Skippy. So theoretically, it would make sense for them to also go out there and buy another nut business in Planters.

- Yeah. Just your leftover peanuts, you'd just grind them up and put them in the Skippy, I guess. You know, I'm also reminded of a frequent guest on our program, the Utz CEO or Utz CEO. That they are an acquirer, a roller up of salty snack brands, but that does again bring it to Myles' question, which is, in what cases do these sort of conglomerations make sense? And then what other cases do they not make sense? And it's not entirely clear to me which-- what strategy governs each particular instance.

BRIAN SOZZI: Yeah. It's tough. Like, I'll tell you where it makes sense. So, in this case, a Hormel buying Planters makes sense because they own Skippy. And to your point, yes, that they could just ground up the peanuts and make more Skippy. You look at McCormick. They just spent $800 million to buy Cholula Hot Sauce.

Well, you know what? They also own Frank's Red hot Sauce. So they can drive a lot of inefficiencies through their plants and make money, and then secondarily also gain more valuable shelf space down the aisles, to the point where they now dominate the hot sauce section, which is very, very important. Where it doesn't make sense, look at Smucker's. Late last year they sold their Crisco oil business to BMG Foods for $550 million. That's a business that no longer made sense for Smucker's to own, just given where it's going with snacks and you name it.

MYLES UDLAND: Yeah sometimes I wish-- I wish this was like a Twitch stream where we could just broadcast our Slack messages out to the viewers so that they could all see the conversation happening right now about peanut butters, smooth or chunky, what the best brand is. I'm an evangelist for chunky Skippy. Don't bring any other peanut butter around me. So, we'll leave it there.

BRIAN SOZZI: Not $20 almond butter? $20 almond butter. That's the only way to [INAUDIBLE].

MYLES UDLAND: No.

- There should be nothing in peanut butter except peanuts and salt. That's it. End of story.

MYLES UDLAND: See the thing is, when you're raised on the processed peanut butter, as an adult, when there's that oil separation in real peanut butter, to me it's like, why would I want the natural stuff that I have to stir? I want it coagulated. I want it set. I want it sugared and I want it to be like a candy spread more than just something nice and healthy.

BRIAN SOZZI: You're not a Chipotle cauliflower--

MYLES UDLAND: All right. I'll leave the peanut butter discussion for another day.

BRIAN SOZZI: Fair enough. All right.

MYLES UDLAND: What's that, Soz? What? You were going to--

BRIAN SOZZI: No, I was going to say you're not a Chipotle cauliflower rice guy.

MYLES UDLAND: No, I'm not. I don't really like healthy food. At a certain point, I'll get to the point in my life when I need to pivot that direction. I'll eat a salad if I have to, but junk is sort of what I was raised on. It's what I continue to be fueled on to this day.