Can Kraft pull off an acquisition of Cadbury Schwepps or Danone?

Can Kraft pull off an acquisition of Cadbury Schwepps or Danone?

Can Kraft pull off an acquisition of Cadbury Schwepps or Danone?

The world's second-largest food company, Kraft Foods Inc., sees large acquisitions being difficult to make ahead of its full spin-off from majority owner Altria Group Inc.

"Very large acquisitions will be difficult as the Altria situation precludes acquisitions using a lot of stock," Kraft Chief Executive Officer Roger Deromedi told Reuters in an interview on Wednesday.

He declined to define the size of a very large acquisition.

Altria, which owns cigarette maker Philip Morris and almost 87 percent of Kraft, needs to clear a number of legal hurdles regarding tobacco litigation in the United States before it can spin off Kraft completely.

Analysts have speculated that Kraft may look to buy France's Danone or Britain's Cadbury Schweppes Plcto expand out of its North American heartland, which still accounts for some 68 percent of group sales.

Kraft, the group behind Maxwell House coffee, Oreo cookies and Philadelphia cheese, has not made a big acquisition since buying Nabisco in 2000 when it was fully owned by Philip Morris, but says it is looking to expand in its four key category areas.

Kraft, second only to Swiss-based Nestle in the food world, makes 55 percent of its sales from its four key areas of coffee, cheese, cookies and beverages and says it is looking the expand these businesses around the world.

"We are focused on our global core areas and acquisitions in these areas," said Deromedi, adding that the group will gain "greater flexibility" to make acquisitions once the spin-off from Altria is completed.

In Europe, Kraft's business is largely focused on coffee, its regional chocolate business Suchard and some cheese, and although Deromedi is looking at organic and acquisition-led growth he sees Europe as a challenging market with poor economic growth, a tough retail environment and high company valuations. "Valuations in Europe are high as a lot of private equity groups have flooded the market," he said.