Kraft Foods Group Inc (KRFT) Merger with H.J. Heinz Company (HNZ) Creates Third Largest Food Company
Velveeta cheese maker Kraft Foods Group Inc (NASDAQ:KRFT) has confirmed that it is to merge with H.J. Heinz Co. to form the third largest food and Beverage Company in North America. H.J. Heinz Company (NYSE:HNZ) is co-owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) and 3G Capital and its CEO, Bernardo Hees is to become the head of the combined entity.
Terms of Merger
The merger comes as Kraft Foods Group Inc (NASDAQ:KRFT) continues to struggle with slowing demand as consumers shift their attention to healthy eating habits and products perceived to be healthier. The struggles have forced the company to overhaul its senior management team over the past few months as it races to develop products that meet the ever-changing consumer preferences.
Under the terms of the merger, Kraft Foods shareholders are to own 49% of the combined company with current H.J. Heinz Company (NYSE:HNZ) shareholders taking the remaining 51% on a fully diluted basis. In addition to receiving stock in the combined company, Kraft shareholders are to receive a special cash dividend of $16.50 a share. The special dividend is being funded by an equity contribution from Berkshire Hathaway and 3G Capital.
Cost saving Synergies
Analysts don’t expect the merger to face any antitrust hurdles as there is little overlap between the two companies operations and products. The combined entity should result in cost savings of $1.5 billion by the end of 2017 at the back of eight established brands worth over $1 billion each.
Kraft Heinz intends to maintain current Kraft Foods Group Inc (NASDAQ:KRFT)’s dividend payment structure that is expected to increase over time. The deal is set to close in the second half of this year.
Berkshire Hathaway and 3G Capital had acquired Heinz in 2013 for $23. 2 billion making it 3G Capital’s fifth major deal in the food and beverage industry since 2008.
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