The Strategist

Heinz to Merge with Kraft Foods

03/25/2015 - 15:07

One of the largest US food manufacturers, companies HJ Heinz and Kraft Foods Group signed an agreement to merge. The new company will be called The Kraft Heinz Company, Heinz said in the press release. Its headquarters are located in Chicago and Pittsburgh.

Heinz shareholders will receive 51% of the securities of the company, the remaining 49% will go to shareholders of Kraft. Kraft’s paper owners will receive a special dividend of 16.5 dollars per share. It is reported that this payment, with total amount about $ 10 billion, will be financed by investment of Berkshire Hathaway billionaire Warren Buffett and 3G Capital.

- The merger will create a structure that will take the third place among the food and beverages production companies in the North America and the fifth place in this segment worldwide, - Heinz noted.

The report said that the new company should enter the top five largest companies of the world’s food industry. According to management guidance, the annual revenue will be approximately $ 28 billion. It is also noted that Kraft Heinz will own eight brands, with total value cost more than a billion dollar, and five brands, estimated at 0.5-1 billion dollars. According to company’s assessment, their merger would reduce the annual cost of $ 1.5 billion by the end of 2017.

It is expected that the merger process will be completed by 2017. After closing, Kraft Heinz Company plans to maintain the level of dividends of Kraft shareholders, which are then expected to grow, the report said.

- I am delighted to play a role in bringing these two companies and their iconic brands. This transaction will bring together two world-class organization and will benefit shareholders. I am pleased with the opportunities that will have a unified structure, - said Buffett.

- We will unite some of the most respected, famous and iconic brands in the global food industry and together will create a more beautiful future, - said John Cahill, head of Kraft Foods Group.

On news of a merger with Heinz Kraft Foods Group, shares on the NASDAQ increased by 23.96% compared with the previous close of trading.

Kraft Foods Group had previously been part of a global snacks manufacturer Kraft Foods Inc. However, in June 2012 Kraft Foods Inc. was divided into independent companies Kraft Foods Group and Mondelez International. Kraft Foods Group is engaged in the production of food. The Group owns brands such as chips Estrella, coffee Jacobs, chocolate Milka, Alpen Gold, Toblerone.

3G Capital (Brazilian private equity fund) and Warren Buffett’s company Berkshire Hathaway purchased Heinz in 2013.