Heinz proceeds to check out US food giant Kraft
US BILLIONAIRE investor Warren Buffet and 3G Capital have gobbled up Kraft Foods and are to merge it with Heinz, creating the fifth largest food and drink company in the world with a value of around $100bn (£67bn).
Under the terms of the deal, announced yesterday, Kraft shareholders will receive 49 per cent of the stock in the combined group, to be called the Kraft Heinz, and a special cash dividend of $16.50 for every share held.
The remaining 51 per cent will be owned by ketchup-maker Heinz, which was bought two years ago by Buffett’s investment firm Berkshire Hathaway and the Brazilian-backed private equity firm 3G for $28bn.
The deal is the biggest this year to date and the fifth largest since the start of 2014, according to data company Merger Market, trailing pharmaceutical giant Actavis’ $72.7bn acquisition of Allergen and US medical device-maker Medtronic purchase of Ireland-based competitor Covidien for $42.9bn.
Heinz will add well-known names such as Oscar Mayer, Philadelphia and Jell-O to its huge stable of brands that includes Lea & Perrins and Weight Watchers. It will be also be able to use its international presence to export Kraft’s brands outside of the US, where sales have been sluggish.
Niel Saunders, managing director of retail analyst Conlumino, said the deal would help both companies address slowing sales in a competitive market.
“Kraft in particular has not been able to grow its market share of major categories. In essence, both have been lacking a growth story that they can sell to investors. The merger provides them with a new narrative,” he told City A.M.
Kraft’s shares soared as much as 43 per cent yesterday to an all-time high of $87.88. Based on Tuesday’s close of $61.32, it had a market value of $36bn.
The pair said they aim to save $1.5bn in costs a year by the end of 2017, raising concerns last night over the future of Kraft Heinz’s combined 52,000 workforce. The UK’s Unite union said it will seek an urgent meeting with Heinz’s management about what the deal means for Heinz’s 2,500 UK staff.