H.J. Heinz Co. is buying Kraft Foods, creating one of the largest food and beverage companies in the world with annual revenue in excess of $28 billion.
The deal was engineered by Warren Buffett’s Berkshire Hathaway and the company that owns Heinz, Brazilian investment firm 3G Capital. Berkshire and 3G will invest $10 billion in what will come to be known as The Kraft Heinz Co.
The company, the third largest of its kind in North America, will own Kraft, Heinz, Oscar Mayer, Ore-Ida and other brands. It will maintain headquarters in Pittsburgh, where Heinz is based, and also in the Chicago area, where Kraft resides.
Shares of Kraft jumped more than 14 per cent on Wednesday before the opening bell.
Kraft shareholders will receive stock in the combined company and a special cash dividend of approximately $10 billion, or $16.50 per share. Each share of Kraft will be converted into one share of Kraft Heinz.
Current Heinz shareholders will own 51 per cent of the combined company, with Kraft shareholders owning a 49 per cent stake. Annual cost savings estimated to be $1.5 billion are expected to be booked by the end of 2017.
“This is my kind of transaction,” said Mr. Buffett in a printed statement. “Uniting two world-class organisations and delivering shareholder value. I’m excited by the opportunities for what this new combined organisation will achieve.”
The deal still needs a nod from federal regulators as well as shareholders of Kraft Foods Group Inc., but the boards of both companies unanimously approved it. It is expected to close in the second half of this year.
Kraft Heinz plans to keep Kraft’s current dividend per share once the transaction closes. Kraft has no plans to change its dividend before the deal closes.
