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Food Industry Braces For Consolidation

By Published on .

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Big is back.

In the hunt for synergies, 3G Capital and Berkshire Hathaway have been bulking up, seemingly shopping for a major food marketer acquisition to add to their existing pantry of H.J. Heinz and Kraft Foods. That's stepping up cost-cutting in the industry as potential targets try to fend off the duo's advances.

Marketers including Campbell Soup, General Mills and Kellogg are among those that appear ripe for the taking, according to Wall Street analysts. Those three, among others, are taking the steps they think could help keep them independent, including reducing costs and investing in smaller, fast-growing pockets of the food industry.

Mondelez International found itself in the spotlight this month after the Swiss magazine Bilanz reported that Kraft Heinz, as the combined company is called, wanted to buy it. Other outlets squashed the rumor, suggesting no offer had been made. But the

attraction is obvious. Stifel analyst Christopher Growe said a combined Kraft Heinz-Mondelez would not only create a powerful No. 2 global food maker behind Nestlé, it would also be the category's most profitable. It is still too early to know whether a deal could be in the works, but Mondelez is seen as a potential player one way or another. Earlier this year, it tried to buy rival Hershey, a plan shot down by Hershey leadership.

Morgan Stanley food analyst Matthew Grainger said he believes Kraft Heinz would be looking for "brands with dominant category positioning, potential for international expansion," and, of course, ways to squeeze out more costs and help its bottom line. In his mind, Mondelez would be the most logical candidate for a takeover, noting that both Kellogg and Campbell Soup have large stakes owned by families that might vote against selling.

General Mills, meanwhile, just laid out a new operating structure, including plans to cut 400 to 600 jobs, signaling that it can trim fat while trying to reignite growth in some of its biggest businesses, including yogurt.

And don't count out the smaller players. Pinnacle Foods, which in recent years acquired brands including Birds Eye and Wish-Bone, is now led by CEO Mark Clouse, who joined in May from, you guessed it, Mondelez. Last week, Pinnacle said "transformative" deals remain a priority.