H.J. Heinz and Kraft Foods Group announced on Wednesday that they have entered a merger agreement to create The Kraft Heinz Company and in doing so form the third largest food and beverage company in the US after Pepsico and Tyson Foods.
Under the terms of the agreement, which has been unanimously approved by the boards of both Heinz and Kraft, Kraft shareholders will own a 49% stake in the combined company, and current Heinz shareholders will own 51%.
Kraft shareholders will receive stock in the combined company and a special cash dividend of $16.50 per share.
The special dividend payment of approximately $10bn is being fully funded by Brazillian private equity firm, 3G Capital, and Warren Buffet’s Berkshire Hathaway, which together currently own Heinz.
Warren Buffett, Chairman and CEO of Berkshire Hathaway said: “I am delighted to play a part in bringing these two winning companies and their iconic brands together. This is my kind of transaction, uniting two world-class organisations and delivering shareholder value. I’m excited by the opportunities for what this new combined organisation will achieve.”
According to a joint release from the two companies, the merger means the combined company will have eight $1bn+ brands and five brands with values of between $500m and $1bn including: Heinz, Kraft, Oscar Mayer, Ore-Ida and Philadelphia. In 2009 Heinz ranked first in ketchup in the US with a market share in excess of 50%.
The news boosted Kraft shares up 37.5% from $61.33 on Tuesday to $84.39 at the close of the NASDAQ on Thursday.
Investment and jobs
It is expected that the complimentary nature of the Heinz and Kraft brand portfolios will provide for increased investments in marketing and innovation. There is also an expectation that the merger will lead to efficiency improvements and cost cuts in one form or another.
Alex Behring, Chairman of Heinz and the Managing Partner at 3G Capital, said he believed the merger would provide a “strong platform” for growth in the US and internationally and was quick to allay fears of job losses.
“We have the utmost respect for the Kraft business and its employees,” he said, “and greatly look forward to working together as we integrate the two companies.”
However, since 3G and Berkshire Hathaway took Heinz private in February 2013, Heinz has reportedly shed a total of 6,650 jobs.
Despite concerns, Berkshire Hathaway and 3G Capital have said in a joint statement that both were “committed to long-term ownership of The Kraft Heinz Company as it strengthens its leadership position in the industry”.
The Kraft Heinz Company will be co-headquartered in both Pittsburgh and the Chicago area. According to company bosses, the new company will aim to preserve both Heinz and Kraft’s heritage in their respective hometowns of Pittsburgh and the Chicago area while remaining committed to supporting local charities and community relationships in the communities in which they operate.
It is as yet unclear what impact the merger will have on Kraft-owned brands such as Cadbury in the UK.