In what amounts to be a nearly $36 billion monster deal, H.J. Heinz Company and Kraft Foods Group Inc. have entered into a definitive merger agreement to create The Kraft Heinz Company, forming the third-largest food and beverage company in North America and the fifth-largest in the world.
Under the terms of the agreement, 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 aggregate special dividend payment of approximately $10 billion is being fully funded by an equity contribution by Berkshire Hathaway and 3G Capital. (In 2013, Berkshire Hathaway and 3G Capital teamed up to acquire H.J. Heinz for $28 billion—the largest-ever acquisition in the food industry, laying the groundwork for this mega merger.)
Two global powerhouses merge
So what does the merging of two global powerhouses mean to the food and beverage industry? The answer is a lot.
The merger combines two portfolios of iconic brands, including Heinz, Kraft, Oscar Mayer, Ore-Ida and Philadelphia. The new company will have revenues of approximately $28 billion with eight $1+ billion brands and five brands between $500 million-$1 billion. The complementary nature of the two brand portfolios presents significant synergy opportunities with strong platform for organic growth in North America, as well as global expansion, by combining Kraft’s brands with Heinz’s international platform.
Heinz is a global family of leading branded products, including Heinz Ketchup, sauces, soups, beans, pasta and infant foods (representing over one third of Heinz’s total sales), Ore-Ida potato products, Weight Watchers Smart Ones entrées, T.G.I. Friday’s snacks and Plasmon infant nutrition. Kraft Foods’ iconic brands include Kraft, Capri Sun, Jell-O, Kool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia, Planters and Velveeta.
The new Kraft Heinz Company will be co-headquartered in Pittsburgh and the Chicago area. Upon completion of the merger, Alex Behring, chairman of Heinz and managing partner at 3G Capital, will become the chairman of The Kraft Heinz Company. John Cahill, Kraft chairman and CEO, will become vice chairman and chair of a newly formed operations and strategy committee of the board of directors. Bernardo Hees, CEO of Heinz, will be appointed CEO of The Kraft Heinz Company. The board of directors of the combined company will consist of five members appointed by the current Kraft board, as well as the current Heinz board, including three members from Berkshire Hathaway and three members from 3G Capital.