On an otherwise dismal day for U.S. stocks Wednesday, a bright spot for the consumer staples sector and some exchange traded funds came courtesy of news that Kraft (NasdaqGS: KRFT) will merge with ketchup giant H.J. Heinz to create the world’s fifth-largest food company.
Heinz was acquired by Brazilian private equity firm 3G Capital and Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) in 2013. Berkshire and 3G will fund a $10 billion special dividend to Kraft shareholders as part of the merger, which was initially valued at $36 billion. The combined company will be publicly traded.
News of the Heinz/Kraft marriage lifted ETFs ranging from the predictable, such as the PowerShares Dynamic Food & Beverage Portfolio (NYSEArca: PBJ), to the surprising, including the Guggenheim Spin-Off ETF (NYSEArca: CSD). [Kraft Takeover Lifts Niche ETFs]
However, another ETF is worth considering if consumer staples mergers and acquisitions activity heats up: The PowerShares DWA Consumer Staples Momentum Portfolio (NYSEArca: PSL). Although it finished the day slightly lower, PSL joined CSD and PBJ in Wednesday’s thinly populated all-time high ETF club. PSL entered Wednesday with a 2.5% Kraft weight.
PSL is home to several credible takeover targets, a catalyst that could benefit the fund going forward. Start with the example of General Mills (NYSE: GIS). Although the company is not a member of PSL’s 32-stock lineup, the acquisition of Kraft could put General Mills on notice, particularly now that Berkshire Hathaway, oft-mentioned as a potential suitor for Big G, is unlikely to acquire another packaged foods maker.
The notice to General Mills is get going on acquiring makers of healthy, organic foods to keep up with consumers’ changing tastes or risk investors’ wrath. Hain Celestial (NasdaqGS: HAIN) and WhiteWave Foods (NYSE: WWAV), a combined 6.7% of PSL’s weight, have been mentioned as possible targets for General Mills.