NEW YORK Kraft Foods may be feeding its cereal to Ralcorp Holdings for about $2.8 billion, according to reports.
Kraft, the number 3 U.S. cereal maker, is rumored to be looking to sell its dry cereal brand, Post Cereals, which produces approximately two-dozen cereals. Ralcorp, a St. Louis-based company, sells store-brand cereals and other foods.
The Wall Street Journal reported that the deal will most likely consist of Kraft “spinning off the cereal business and then merging with Ralcorp, making it a stock-based deal.”
Kraft said that rising commodity costs, strong competition and a decision to stop advertising sugary cereal to young children have hurt sales of Post cereals. According to the Journal report, “sales of Post cereal at food retailers (excluding Wal-Mart Stores) fell 2 percent, to $699 million in the first nine months of this year. During that period, sales in the overall ready-to-eat cereal category fell flat, at nearly $5 billion.”
In January, Kraft sold several sectors, including its hot cereal business and several beverage products. Last year, the company sold its Milk-Bone and Minute Rice brands.
It is believed that Irene Rosenfeld, Kraft’s chief executive officer, is trying to get rid of the company’s glacially-paced products.
Kraft has not commented on the cereal-sale conjecture. The announcement of the company’s third-quarter earnings results, posted last week, caused rumors to swirl.
The nation’s biggest food and beverage maker posted better-than-expected revenue for its third quarter ended Sept. 30, but soaring dairy prices caused Kraft’s profit to tumble 20 percent from the prior-year quarter, which also included a one-time gain. Revenue rose 10 percent, to $9.05 billion from $8.24 billion in Q3 2006. Net income fell to $596 million, down from $748 million.