Heinz and Kraft Foods have entered into a merger agreement to create the Kraft Heinz Company and form North America’s third-largest food and beverage company.
Alex Behring, 3G Capital managing partner and Heinz chairman:
“By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth. Our combined brands and businesses mean increased scale and relevance both in the U.S. and internationally. We have the utmost respect for the Kraft business and its employees, and greatly look forward to working together as we integrate the two companies.”
Under the agreement’s terms, which was approved unanimously from both companies’ boards of directors, Kraft shareholders will own 49% of the joint company, with Heinz shareholders owning the remaining 51% on a fully diluted basis. Kraft shareholders will also receive a special cash dividend of $16.50 per share. The $10 billion total special dividend is being fully funded by an equity contribution by Berkshire Hathaway and 3G Capital.
Warren Buffett, Berkshire Hathaway chairman and CEO:
“I am delighted to play a part in bringing these two winning companies and their iconic brands together. 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.”
The merger of these iconic food companies join together two portfolios of powerhouse brands, including Heinz, Kraft, Oscar Meyer, Ore-Ida and Philadelphia. Together, the new company will have eight billion-dollar brands and five more brands valued at over half a billion dollars. The joint company’s complementary nature of a portfolio presents “substantial opportunity” for synergies, resulting in increased marketing and innovation investments.
John Cahill, Kraft chairman and CEO:
“Together, we will have some of the most respected recognized and storied brands in the global food industry, and together we will create an even brighter future. The combination offers significant cash value to our shareholders and the opportunity to be investors in a company very well positioned for growth, especially outside the United States, as we bring Kraft’s iconic brands to international markets. We look forward to uniting with Heinz in what will be an exciting new chapter ahead.”
When the transaction closes, Alex Behring, Heinz chairman and 3G Capital managing partner, will become Kraft Heinz Company chairman. Cahill will become vice chairman and chair of a newly formed operations and strategy committee of the board of directors.
Bernardo Hees, Heinz CEO:
“We are thrilled about the unique opportunities this merger will create for our consumers worldwide, as well as our employees and business partners. Together, Heinz and Kraft will be able to achieve rapid expansion while delivering the quality, brands and products that our consumers love. Over the past two years, we have transformed Heinz into one of the most efficient and profitable food companies in the world while reinvesting behind our key brands and continuing our relentless commitment to quality and innovation.”
Hees will be the joint company’s chief executive. The new executive team for the joint company’s announcement will come at a later date.
The Kraft Heinz Company’s board of directors will consist of five members appointed from the current Heinz and Kraft boards, and three members from both Berkshire Hathaway and 3G Capital.
The company will have headquarters in both Kraft and Heinz’s current headquarters in Pittsburgh and the Chicago area.
Each Kraft share will convert to one share of the joint company.
The joint company’s synergy potential includes an estimated $1.5 billion annual cost savings implemented by the end of 2017. Synergies will come from the new organization’s increased scale, the sharing of best practices and cost reductions.
The transaction is expected to become EPS accretive by 2017. Once the transaction is complete, the Kraft Heinz Company will keep up Kraft’s current dividend per share. Kraft has no plans to change its dividend before the deal closes.
The special $10 billion cash dividend gets paid on closing and funded by a Berkshire Hathaway/3G Capital equity investment. The company will continue as a publicly traded one.
As the cash consideration is fully funded by common equity from Berkshire Hathaway and 3G Capital, the merger isn’t expected to increase the joint company’s debt levels.
The transaction is subject to approval by Kraft shareholders, receipt of regulatory approvals and other closing conditions and is expected to close in the second half of the year.