On Wednesday, Heinz and Kraft Foods Group (NASDAQ: KRFT) announced they will merge to form The Kraft Heinz Co. The merger forms the fifth largest food and beverage firm in the world, and the third largest in the U.S. The deal, worth around $36 billion and subject to regulatory and shareholder approvals, was funded by Warren Buffett’s Berkshire Hathaway (NYSE: BRK) and private equity giant 3G Capital.
The firms recently stated, “Kraft shareholders will own a 49% stake in the combined company, and current Heinz shareholders will own 51% on a fully diluted basis.”
Presumably, as a result of the transaction, Kraft’s shares have exploded in pre-market tradse by more than 34%. The stock opened at $81.45 and hit a record high of $87.88.
Kraft’s Dreary 2015
The deal comes to Kraft Food’s table at a peculiar time, as they have not had a great start to 2015. After unexpectedly naming a new chief executive in December, the American grocery manufacturing and processing heavyweight has struggled – possibly due to changes in consumer tastes and a cracking-down on the nutritional value of packaged foods by the Food and Drug Administration. To make matters worse, Kraft recently voluntarily recalled 242,000 cases – more than 6.5 million boxes – of Mac & Cheese products because they may contained pieces of metal. After yet another shake-up in the manufacturing conglomerate, we will see how Kraft responds.
What’s in it for 3G Capital and Warren Buffett?
Seeing the kind of 2015 Kraft Foods has had so far, most investors would shy away from acquiring it. However, 3G Capital is no stranger to deals in the food industry – the Brazil-based private equity firm teamed up with Warren Buffet to acquire H.J. Heinz Co. in 2013, after previous acquisitions of Canadian coffee-and-doughnut retailer Tim Hortons and American fast-food restaurant Burger King. The company, known for its cost-slashing philosophy, will be ready to enact new changes in the doings of its most recent acquisition.
Buffett, arguably today’s most well-known and influential American investor, said in a statement, “This is my kind of transaction, uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.”
It will be exciting to see what the now No. 3 food company’s next moves will be.