SMITH BRAIN TRUST — Colgate-Palmolive CEO Ian Cook earlier this month signaled interest in selling the company for $100 a share, suggesting a strong possibility that a friendly deal for the company could be struck reasonably soon, says clinical professor of finance David Kass at the University of Maryland's Robert H. Smith School of Business.
Kass predicted such a move in February. More recently, he described to TheStreet why Colgate-Palmolive could be attractive to Kraft Heinz, 3G Capital or Berkshire Hathaway. He said one possibility is Buffett and 3G partnering to finance Kraft's purchase of Colgate-Palmolive for as much as $85 billion, a premium on the company's current $65 billion market capitalization. "It would be consolidated into Kraft-Heinz, and 3G would bring in its own management team. 3G Capital would want to acquire it if it felt that it wasn't efficiently run and if they thought they could introduce efficiency."
That theory, Kass said, is buoyed by Buffett and 3G having worked together before — on the purchase of Heinz, which predated its merger with Kraft. The combined company also has some synergies with Colgate-Palmolive. Colgate garners a large percentage of its sales outside the United States, and it could use its international distribution chain as a channel for Kraft-Heinz, which has a much smaller international presence.
The merged companies would also benefit from some economies of scale with U.S. retailers that sell both Colgate's household products and Kraft Heinz's food and beverages. "Mondelez's effort to buy Hershey suggests that it may be interested in buying something else as a defensive measure, so that they may be more difficult for someone like Kraft Heinz to swallow," Kass said. "Mondelez has more international exposure than Kraft Heinz, and putting the two together would open up more markets abroad, while bringing more domestic markets for Cadbury."
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