Kraft Mulls Selling Post

August 16, 2007/New York/MarketWatch -- Kraft Foods Inc. may be looking for a buyer for its Post cereal unit, which may fetch as much as $3 billion, according to a published report.

Kraft has sent its financial information to potential bidders, which may include PepsiCo Inc., The Wall Street Journal reported Thursday, citing unidentified people familiar with the situation. A deal could be signed later this year if the auction is successful, the paper said. PepsiCo's Quaker unit makes the Cap'n Crunch and Life cereals.

Other cereal makers including General Mills Inc. and Ralcorp Holdings Inc. may also be interested in buying the Post business, the Journal said. General Mills' cereal brands include Total Raisin Bran and Cocoa Puffs while Ralcorp's private-label foods include cereal.

Kraft chief executive Irene Rosenfeld, a former PepsiCo executive before joining Kraft, said earlier this month the company is evaluating its portfolio to divest businesses that do not fit with Kraft's strategic plan. She said then those businesses being considered will be "considerably smaller than" 5% of Kraft's sales as the company focuses on organic growth.

Kraft's "increased focus and commitment to prune the product portfolio as positive as long as the dilution impact is minimized," said J.P. Morgan Securities analyst Pablo Zuanic in a note. He said the sale of its cereal line could cut per-share profit by as much as 4 cents if the company doesn't couple that with buybacks.

Kraft shares fell 2.3% in early afternoon trading.

Kraft has lost market share among brands that generate over half of the company's total, it said earlier this month. Like other food companies, Kraft also has raised prices to offset rising wheat and other commodity costs.

Rosenfeld also faces pressure from activist investor Nelson Peltz, who has bought a 3% stake in Kraft and called on the food company to sell Post, the Journal said.

PepsiCo spokeswoman Jenny Schiavone declined to comment in an interview with MarketWatch. The company, however, has a "pipeline of potential acquisitions" ranging in size from $5 million to $2 billion, she said.

Kraft spokeswoman Claire Regan and General Mills spokeswoman Kirstie Foster declined to comment. Ralcorp spokesman Scott Monette didn't respond to a MarketWatch call seeking comment.

Kraft, which does not disclose individual brand results, said earlier this month second-quarter North American snacks and cereal unit sales rose 0.4% to $1.6 billion with a decline in operating income.

These potential corporate buyers may be facing little competition from private-equity firms, which may be tapped out of financing amid high-yield debt market woes, the Journal said.

From the August 27, 2007, Prepared Foods e-Flash