In a deal that could create one of the biggest food and beverage firms in America, Heinz will merge with Kraft Foods Group later this year, pending regulatory clearance.
Kraft shares rocketed after the announcement with a 40% jump to $83.18 in New York’s afternoon session yesterday.
Heinz owners Berkshire Hathaway, a Warren Buffet company, and Brazilian investment outfit 3G Capital engineered the agreement, and Heinz shareholders will end up owning over half the new entity, with the remainder belonging to Kraft shareholders.
Heinz went private two years ago after they were bought by the current owners. Billionaire investor Mr. Buffet, who is the CEO of Berkshire Hathaway, commented that he was “overjoyed” that he could be involved in bringing the two iconic companies and brands together.
“I’ve always been concerned number one with delivering value for shareholders. We are doing that with this merger, and secondly, we are combining two top-class brands. It’s a very exciting time and employees of both firms can move forward together confidently,” said Mr. Buffet.
By the end of 2017 the newly formed company, which will be named Kraft Heinz Company, will expect to make $2 billion in annual operational cost savings. Combined sales are thought to be as high as $30 billion, with the help of leading brands such as Oscar Mayor hotdogs together with Kraft and Heinz.
Investment and trading firm Sinolink Japan mentioned the Heinz proposal in a recent blog piece, saying the company would benefit hugely on the international stage with the merger.
As part of the deal, Heinz owners will fund a special cash dividend for Kraft shareholders who will receive $16.70 bonus for each share. The dividend kitty is thought to be in the region of $7 billion.
Kraft CEO John Cahill, who will become the vice chairman of the newly formed company, said, “We are looking forward to entering into a new era with Heinz.”
Alex Behring, chairman of Heinz, and Bernardo Hees, CEO of Heinz will remain in their roles in the new firm moving forward. The deal is expected to be finalised later in 2015, after regulatory approval is cleared, a step insiders say will present no issues.
