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Shares of Mondelez International Inc. (Nasdaq: MDLZ) surged 6% after hours Wednesday as rumors spread that Pittsburgh-based Kraft-Heinz might be interested in purchasing Chicago-headquartered Mondelez. German business magazine Bilanz first reported about the possible takeover.
Mondelez shares rose 4.9% Thursday morning as the rumor spread. But after CNBC shot down the likelihood of a deal between the two snack food goliaths, Mondelez stock pared those gains. MDLZ ended Thursday up 1.88% at $44.71. In early trading today (Friday), shares were off 0.85% at $44.33.
While a Mondelez/Kraft-Heinz deal right now may be off the table, a good case could be made for why the two should unite, or reunite.
Mondelez owns well-known brands including Cadbury, Nabisco, Ritz, and Toblerone. Meanwhile, Kraft-Heinz's portfolio boasts classic brands such as its namesake macaroni and cheese, Velveeta, Oscar Mayer, and Kool-Aid.
The two would nicely complement each other. In fact, the two were once one company...
Would a Merger Benefit Mondelez International Stock?
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In October 2012, under pressure from activist investor Trian Fund Management LP, Kraft decided to split in two. It spun-off off its mature North American grocery business into a global snack-food business. The larger global business, which includes Oreo, Cadbury, Wheat Thins, and other brands, was named Mondelez International. The name Mondelez is taken from the Latin words for "world" and "delicious."
The smaller company, named Kraft Foods Group Inc., kept legendary brands like Maxwell House coffee, Jell-O, Planters nuts, and more under its umbrella.
In March 2015, Kraft and Heinz agreed to merge in a deal spearheaded by Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A) and private-equity firm 3G Capital Partners. The deal created the fifth-largest food company in the world by sales.
Mondelez has been vulnerable to a takeover since August, after Hershey Inc. (NYSE: HSY) rebuffed a takeover approach from the snack-food company. What sparked the recent rumors was news in the last month that 3G is planning to raise up to $10 billion for new takeovers in the food industry.
Still, doubts remain that a deal will materialize. Buffett denied reports of a Kraft-Heinz/Mondelez deal in an interview with CNBC in August 2015.
Sure, the Oracle of Omaha could change his mind. But it's never wise or prudent for investors to buy a stock simply on takeover chatter.
At a recent $44.42, Mondelez shares are off 1.52% year to date.
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- Barron's: Mondelez & Kraft Heinz: Reuniting the Band?
- Bloomberg: Kraft Heinz, Mondelez Said to Not Currently Be in Deal Talks
- Chicago Sun Times: Mondelez Rises on Report of Possible Offer by Kraft Heinz