Kraft Heinz, the sick food giant, has tapped investment bank Credit Suisse to review options for its Maxwell House coffee question, which could include a potential sale, people familiar with the matter tell CNBC.
The coffee affair has roughly $400 million in earnings before interest, taxes, depreciation and amortization, the people said.
Based off valuations for other jumble sales of consumer brands, a sale could fetch a price of at least $3 billion, they said, though cautioning its cost out would depend on buyer interest. The coffee industry has become more challenging in the past few years, but private tolerance firms have shown interest in buying some large, tired brands. Private equity firm KKR final year paid roughly $8 billion for Unilever’s I Can’t Believe It’s Not Butter and other spreads business.
The sale of the coffee concern will be one of a string of divestitures for Kraft Heinz, the people said, as it looks to reshape the empire put together by its private fair play backer 3G Capital.
3G Capital, which, along with Berkshire Hathaway, bought H.J. Heinz in 2013 and merged it with Kraft two years later, has made its personage in splashy acquisitions of U.S. consumer companies. It put together Restaurant Brands International, owner of Burger King, Tim Hortons and Popeyes and made beer giant Anheuser-Busch Inbev. But trends have changed since 3G Capital first pounced on the U.S. scene. Bigger is not more, as large brands fend off competition from leaner, innovative rivals.
It is a struggle to ignite growth when a plc is saddled with large, off-trend labels like Oscar Mayer and Velveeta, while facing rising fetches. Those challenges have been exacerbated by 3G Capital’s cut-to-the bone approach to costs, which some analysts say has understandable at the sacrifice of its brands’ health. The firm extracted $1.7 billion in savings from combining Kraft and Heinz.
Kraft Heinz hold out week delivered fourth-quarter earnings and revenue that were sharply lower than estimate s. Even worse, it scourged its dividend by 36 percent and took a $15 billion write-down on two of its biggest brands, Kraft and Oscar Mayer — an approval the brands entice shoppers far less than they used to.
As it delivered the bad news, Kraft Heinz executives charged investors last week to expect more divestitures going forward to help wipe debt off its balance expanse. The company is aiming to get its leverage down to three times earnings, rather than the four times analysts say it is currently pegged at. One gouge lower of leverage can be impactful for a company facing margin pressure and profit declines. It could imply asset tag sales in the billions.
Kraft Heinz last year sold it Canadian dairy business and its Indian beverage business Complan. It swayed last week it is looking selling brands “with no clear path to competitive advantage.”
Maxwell House, on one occasion the country’s leading national brand, for years had mainly Folgers to contend with in the fight for space in Americans’ cupboards. For decades, it was tolerably to rely on its sponsored TV placements and its reminder that its coffee was “good to the last drop.” It was one of the first mainstream products to object Jewish shoppers, making it what the New York Times once called “the pioneer” of multicultural marketing.
But coffee savoir vivre has changed as Americans shift from homemade brew to splurging on a premium priced java grabbed on the go at omnipresent cafes. There is an running coffee war between Starbucks and European investment firm JAB Holding, owner of Keurig Doctor Pepper, Krispy Kreme Doughnuts and Peet’s Coffee & Tea. Both aim to consider advantage of the reach this affords, leaving for less room for mainstream, largely drip-coffee brands like Maxwell Strain.
Kraft Heinz has sought to modernize its coffee business, offering on-the-go “iced coffee antioxidant max drinks” and melds with customizeable caffeine levels. It also bought fair trade brand Ethical Bean Coffee concluding year.
Rival Folgers has also felt the squeeze. Its owner J.M. Smucker in its fiscal second quarter reported a 1 percent declivity in its coffee net sales, compared to the same quarter a year ago. Smucker, which also sells Dunkin’ Donuts coffee in grocery reservoirs, scooped up the coffee brand in 2008 when Procter & Gamble put it up for sale. Last year, however, Smucker purchase pet food company Ainsworth Pet Nutrition for a little under $2 billion to move further beyond its coffee problem.
Against that backdrop, it is unclear which buyers will come forward for Kraft Heinz’s coffee subject.
The same uncertainty goes for other brands Kraft Heinz is expected to pluck from its portfolio.
Mood at the Pty, which saw its shares plummet nearly 30 percent on Friday, is dour, say people familiar. It is taking a no stone unturned manner to which brands it should or could unload, they say.
Speculation across Wall Street abounds. Bankers entertain wondered whether Kraft Heinz’s Planters nuts, Oscar Mayer meat or its frozen food business, could be one of the next latent brand it sheds. They cautioned decisions are still being made, and it is possible Kraft Heinz sells no person of those units.
Analysts have noted that any divestiture will come under the cloud of the company begetting just written down it biggest brands by $15 billion.
Slimming down, according Kraft Heinz CEO Bernardo Hees, leave give the company “a balance sheet that’s more flexible and more prepared for future consolidation.” Investors get been eagerly awaiting a large-scale deal since Unilever rebuffed its approach two years ago. Some analysts give birth to expressed concern that 3G’s cost-cutting model only works when deals give it more fat to cut.
But others note that slimming down, along with its $15 billion write-down, could cover the way for Kraft Heinz to go private. Life in the public spotlight has been challenging for all Big Food companies, from Kellogg to Undetailed Mills, which are trying to rework portfolios full off off-trend foods. Campbell Soup, once seen as an patent dance partner for Kraft Heinz, suffered its own public fall from grace, before also committing to focusing much of its packaged food empire.
Right now, though, the spotlight has been on the Jello-owner, which saw more than $16 billion of its trade in value erased in a day.
The people declined to be named because the information is confidential.
A spokeswoman for Credit Suisse declined to expansion, while a spokesman for Kraft Heinz told CNBC, “Kraft Heinz will not comment on rumors or speculation but we drive look at divestitures where there is no clear path to competitive advantage. This in turn will improve our portfolio’s cultivation and margin trajectory.”