Warren Buffett engineers Heinz and Kraft merger

Kraft Foods Group Inc said it will merge with H.J. Heinz Co. Picture: Getty
Kraft Foods Group Inc said it will merge with H.J. Heinz Co. Picture: Getty
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A MEGA-MERGER of Heinz and Kraft engineered by investor Warren Buffett is set to create one of the word’s largest food companies but is “not a magic wand” that can wave away some underlying problems.

Heinz’s owners – Buffett’s Berkshire Hathaway and the Brazilian investment firm 3G Capital – are to take control of Kraft in a deal that will gather together some of the UK’s best-known grocery brands and save the enlarged US parent company about £1 billion a year.

Buffett said: “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 organisations and delivering shareholder value. I’m excited by the opportunities for what this new combined organisation will achieve.”

The new firm – to be called the Kraft Heinz Company – will become one of the largest food groups in the world with annual revenue in excess of $28bn (£18bn).

Current Heinz shareholders will invest $10bn to finance a $16.50 a share cash dividend, and will own 51 per cent of the combined company, with Kraft shareholders taking the remaining a 49 per cent stake.

Both boards have unanimously approved the deal, set to close in the second half of the year. It still requires approval from Kraft shareholders.

Kraft’s high-profile brands are Philadelphia, Dairylea cheese triangles and Capri Sun fruit juice. It also owns Maxwell House coffee.

It is best known in the UK for its controversial takeover of Cadbury in 2010 for £11.5bn. But the chocolate-maker was spun off in 2012 as part of the Mondelez business, alongside other brands such as Trident gum and Oreo biscuits.

Heinz is best known for its beans, or “beanz” as it likes to spell them, and ketchup, HP Sauce and Lea & Perrins.

It still uses the “57 sauces” logo despite having more than 5,700 products worldwide – a throwback to founder Henry J Heinz believing it to be a lucky number.

Neil Saunders, managing director of retail consultancy Conlumino, said: “In many ways the marriage of Kraft and Heinz is a sound one: the companies complement each other in terms of the brands they own, the geographies they operate in, and there are undoubtedly synergistic cost savings that can be found.

“However, as much as this is so, the tie-up is also one of convenience. Both brands have suffered from a slowdown in sales and are now looking to provide investors with a new growth story.”

But he added: “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.”

Heinz employs about 2,500 people in the UK and Ireland, and the Unite union said it was seeking reassurances about UK jobs as a result of the merger, claiming the news had been a “bolt from the blue”.


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