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Cramer: Market Weakness Has Silver Lining

Thursday, 6 Jun 2013 | 6:26 PM ET
Post Ready For a Takeover?
Thursday, 6 Jun 2013 | 6:25 PM ET
Mad Money host Jim Cramer recommends Post Holdings for a takeover. "In one fell swoop, Post could soar," he says.

(Click for video linked to a searchable transcript of this Mad Money segment)

They say every storm cloud has a silver lining. Cramer thinks that adage even applies to the stock market and its recent whoosh lower.

"During the whole move higher, one of my biggest complaints was that companies had missed their window to make major acquisitions," Cramer explained. But now that this stock market has been hit hard, a whole new universe of companies have once again become affordable from a takeover perspective."

And the Mad Money host has identified a company that's he says 'is just begging to be taken over.'

"I'm referring to Post Holdings, the breakfast cereal company that makes everything from Honey Bunches of Oats, to Shredded Wheat, Waffle Crisps, Pebbles, Honeycomb, Grape Nuts and Raisin Brain."

DENIS-HUOT Michel | hemis.fr | Getty Images

Now that's not to suggest that Cramer sees Post as a troubled company – he doesn't.

"Post has done a great deal to get its house in order," Cramer said. "Management has been improving its margins and the company is generating lots of cash flow. Plus, lately, their raw costs have been declining pretty dramatically."

Cramer sees Post as a takeover target simply because he believes it's too small to remain independent in the cutthroat cereal business. And he expects to see more consolidation in the consumer staples sector.

So, who would buy this company?

Ironically, Cramer sees Kraft as a potential suitor. That's ironic because Kraft is the company that sold Post in 2008. However, Cramer is convinced under current management, Kraft has become more focused on the U.S. grocery business. "And if they're looking for acquisitions with good margins and robust cash flow, Post Holdings fits the bill."

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Also Cramer considers Berkshire Hathaway a potential buyer. "When we found out that Heinz was being bought by Berkshire, the Heinz's CEO said that the goal of the deal was to make his business into a, quote, "bigger, even more global food company." That could mean that Berkshire's looking to make more acquisitions in the food space, and Post has a host of iconic cereal brands," Cramer said

In addition, Cramer thinks Post fits well with Pinnacle Foods. "This company specializes in revitalizing older brands and Pinnacle has stated that it wants to grow its shelf space," said Cramer.

So how much would Post be worth on a takeover?

Cramer has crunched the numbers and says if Post were valued in the same way that Berkshire valued Heinz, it would fetch $3.1 billion or $63 a share. And even if the valuation is more conservative such as what ConAgra paid for Ralcorp, that would send Post to more than $53 a share.

All told, Cramer thinks the reward merits the risks.

"I'm recommending Post Holdings for takeover speculation right now, right here. I think the stock can work its way higher on its own, thanks to the fundamentals including raw costs that are coming down, but an acquisition is a very real possibility for this tiny cereal name and it would send Post soaring."

Disclosure: On Thursday June 6, 2013 Jim Cramer owned Pinnacle Foods on behalf of his charitable trust.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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