H.J. Heinz and Kraft ink a merger deal

by The City Wire staff ([email protected]) 110 views 

Two of Wal-Mart’s largest suppliers, H.J. Heinz Co. and Kraft Foods, have entered into a merger agreement creating the third largest food company in North American and the fifth largest in the world.

Once the dust settles, Heinz shareholders will own 51% of the combined company which is to be called The Kraft Heinz Co, with co-headquarters in Pittsburg and Chicago.

As part of the transaction, Kraft Foods shareholders will receive stock in the combined company as well as a special cash dividend of $16.50 per share, which represents 27% of Kraft’s closing stock price on March 24. The cash dividend payment will total approximately $10 billion and be funded by an equity contribution from Berkshire Hathaway and 3G Capital, the owners of Heinz. The agreement has been approved by the boards of directors of both companies.

“By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth,” said Alex Behring, chairman of Heinz and the managing partner in 3G Capital. “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.”

Behring will become chairman of the new company and John Cahill, chairman and CEO of Kraft Foods, will become vice-chairman. Bernardo Hees, the CEO of Heinz, will become the CEO of the Kraft Heinz Co., the company noted in the release.

The pro forma company will have an estimated $28 billion in annual sales. Together the new company will have eight brands with sales in excess of $1 billion and five brands with sales between $500 million and $1 billion.

The complementary nature of the two brand portfolios presents substantial opportunity for synergies, which will result in increased investments in marketing and innovation, according to H.J. Heinz. A statement outlining the merger estimated synergy potential to be approximately $1.5 billion by the end of 2017.

“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,” Cahill said. “This 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.”

Kraft and Heinz have sales offices in Northwest Arkansas and it's too early to know if there will be any job consolidation as a result of this merger.