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US food stocks rally on report that a major acquisition may be coming

Kraft and Heinz products
Scott Olson | Getty Images
Kraft and Heinz products

Several major U.S. packaged food companies were trading sharply higher Tuesday afternoon, following a report that Brazilian private equity firm 3G Capital is raising between $8 billion and $10 billion to fund a new acquisition that could target food companies.

Citing sources close to 3G's management, Brazil Journal reported the firm hasn't named a target. But speculative bets include names such as Mondelez, known for its biscuits, chocolate, gum, candy and powdered beverages.

Mondelez shares were up 4 percent in midday trading. Deal speculation also lifted ConAgra Foods, General Mills, Campbell Soup and Kellogg higher.

Kraft Heinz stock rose some 3 percent, as the report said an acquisition would be done through the U.S. packaged foods juggernaut. Mondelez could be folded into Kraft Heinz, which is part-owned by 3G and Warren Buffett's Berkshire Hathaway, the report said.

Acquiring Illinois-based Mondelez or another major U.S. food giant could add new brands to Kraft Heinz's portfolio, which is known for everything from Heinz ketchup and Oscar Mayer meats to Velveeta cheese products.

"From a portfolio view, we believe Mondelez (for top-line growth/emerging [market] exposure) and Kellogg (margin opportunity) make the most strategic sense," UBS analyst Steven Strycula said in a note Tuesday.

Even without a deal, Kraft Heinz remains a top pick into the new year for several reasons, including its earnings growth, attractive dividend yield and accelerating free cash flow outlook, the analyst said.

A spokesman for Kraft Heinz said the company had no comment. Mondelez also declined comment. 3G didn't immediately respond to CNBC's request for comment.

Last year, 3G teamed up with Berkshire to buy Kraft Foods Group through H.J. Heinz. The investors merged the two food giants and now own more than a combined 50 percent stake. The cost synergies from merging the two companies are considered ahead of schedule.

3G also has holdings in restaurants and alcoholic beverages. Affiliates of the Brazilian buyout firm have been shareholders in AB InBev since 1989. In 2014, 3G completed a deal to combine its Burger King fast-food chain holding with Canadian-based donut and coffee chain Tim Hortons.