Kraft Foods has now completed its IPO. The offering raised $8.7 billion, with stocks priced at the higher end of the expected range. With investors still sore from the technology company tumble, the price is as much a reflection of the comparative security of the food market as Kraft’s future prospects. The company has solid products and excellent expected savings, but there is still plenty of room for improvement.
Kraft Foods has raised $8.7 billion with its initial public offering, making it the second-largest US IPO ever. While there has been some speculation that the IPO is a sign of an upcoming spin-off, there may be legal problems with such an occurrence. Anti-tobacco lawyers may interpret a complete spin-off as an attempt by Philip Morris, which still owns 84% of Kraft, to put its assets out of the reach of plaintiffs. With Kraft Foods remaining as a separate, but not entirely unrelated, business there is still some level of risk that needs to be accounted for.
Go deeper with GlobalData
The IPO has created of a lot of attention. The market for IPOs has been rather unenthusiastic of late, with investors still cautious after tumbling share prices of high-promise, low-profit technology companies. While the market has started to pick up, buyers are still more risk averse than before.
But Kraft, the maker of Jello, Philadelphia cheese and Nabisco cookies, has a lot of qualities to reassure potential investors. To start with, the food market is a relatively stable one and comparatively resistant to economic downturns or, indeed, recessions. And Kraft is faring better than the market.
Kraft may have seen unimpressive growth rates in recent years, but last year’s acquisition of Nabisco should change all that. On top of organic growth expectations, the integration of Nabisco should create significant synergies for the two companies. Proceeds of the IPO will be used to reduce the company’s debt, which will also help.
Overall, profits at Kraft are expected to grow by significantly more than 10% over the next few years. Yet, the company is not without its drawbacks. Kraft is already a major player in North America and Western Europe, so any major growth would have to come from other markets. While the company does trade in regions such as Asia and South America, it still has a long way to go.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData(c) 2001 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.
