H.J. Heinz is buying Kraft Foods Group, creating one of the largest food and beverage companies in the world with annual revenue of about US$28 billion.
The Kraft Heinz Co. will own brands such as Kraft, Heinz, Oscar Mayer, Ore-Ida and other brands. Eight of those brands have annual sales of US$1 billion or more and five others log sales between US$500 million and US$1 billion every year.
The deal to bring together the two companies, each more than a century old, was engineered by Heinz’s owner, the Brazilian investment firm 3G Capital, and billionaire investor Warren Buffett’s Berkshire Hathaway.
3G Capital is the company behind the takeover of Tim Hortons by Burger King last year. It joined forces with Berkshire Hathaway two years ago to buy Heinz in a deal valued at $23.3 billion.
Kraft Heinz will maintain headquarters in Pittsburgh, where Heinz is based, and also in the Chicago area, where Kraft resides.
The merger comes as well-established food producers struggle to keep up with shifting appetites. Consumers are seeking more unprocessed foods, and have migrated away from one-time staples of the American diet.
Buffett, however, said both companies have a strong base. He has been investing steadily on both of them for quite a while.
“I think the tastes Kraft and Heinz appeal to are pretty enduring,” Buffett said in a telephone call to the business news channel CNBC.
There are plans for at least four new products this year, Buffett said, and that there is a lot of freedom to sell the company’s products outside of the U.S. and Canada.
Buffett said the massive deal materialized rapidly, having been in the works for only about four weeks or so.
Heinz shareholders will be majority owners of the merged company and Kraft shareholders will receive stock in the combined company and a special cash dividend of approximately $10 billion, or US$16.50 per share.
Kraft shares closed on Tuesday at US$61.33 and rose by about 25% to US$77.02 in premarket trading after the deal was announced.
Current Heinz shareholders will own 51% of the combined company, with Kraft shareholders owning 49%.
The combined company’s brands will include Kraft, Heinz, Oscar Mayer and others.
Both companies’ boards have unanimously approved the deal, which is targeted to close in the second half of the year. It still needs approval from Kraft shareholders.
Annual cost savings estimated to be $1.5 billion are expected to be booked by the end of 2017.
