3G Capital and Warren Buffet are to takeover Kraft Foods Group. and merge it with Heinz, creating Kraft Heinz Company. The deal will create one of the world‘s largest food and beverage companies with a combined value of around $100bn.
Alex Behring, Heinz‘s chairman and 3G Capital managing partner, will become chairman of the combined company and Kraft Chief Executive John Cahill will be Vice Chairman. The deal is expected to close in the second half of 2015.
Under the terms of the transaction, Kraft shareholders will own a 49% stake in the combined company, and the remaining 51% will be held by the US food giants, Heinz shareholders.
The deal includes a special dividend for Kraft investors of $16.50 a share, which will cost 3G and Buffett‘s Berkshire Hathaway $10bn.
As of Wednesday, Kraft shares jumped up by 32.5% to $81.45, giving the market capitalisation of nearly $48bn.
The combined firm expects to make $1.5bn cost savings per year by the end of 2017. The annual revenue of both brands equals $29bn and the merger will create the third-largest food and beverage company in North America and the fifth-largest in the world.
“This is my kind of transaction, uniting two world-class organisations and delivering shareholder value,” Buffett said. “I‘m excited by the opportunities for what this new combined organisation will achieve.”
Neil Saunders, Managing Director of Conlumino, commented: “As much as the merger will provide opportunities, not least to enhance short-term earnings for investors, it is not a magic wand that can wave away the underlying problems of either company.
Heinz, and especially Kraft, both need to invest in brands, in marketing and, most critically, in product innovation if they are to remain relevant to consumers around the world. Unlike cost savings, this is not something that a merger automatically delivers.
Nevertheless, unless the combined company focuses on this aspect it will ultimately end up being larger but no more successful than the standalone companies are today.”