Heinz to Merge With Kraft Foods in Deal Backed by Buffett, Brazilian Firm

PITTSBURGH (Pittsburgh Post-Gazette/TNS) -

Kraft Foods Group Inc., maker of Jell-O and Oscar Mayer hot dogs, is expected to merge with ketchup maker H.J. Heinz Co., a food-industry mashup that officials said would create the fifth-largest food-and-beverage company in the world with annual revenues of about $28 billion.

On Wednesday, shares of Northfield, Ill.-based Kraft rose 35.6 percent to $83.17, as investors appeared to welcome the offer from the Pittsburgh ketchup maker.

The deal would give the owners of Heinz — Brazilian investment firm 3G Capital and Warren Buffett’s Berkshire Hathaway — 51 percent ownership of the new Kraft Heinz Co. and leave the remaining 49 percent to Kraft shareholders.

Kraft shareholders would also collect a cash payment of $16.50 per share, and the merger partners have said they’ll continue paying a dividend at the same level Kraft now distributes.

In late January, Alex Behring, the chairman of Heinz and managing partner in 3G Capital, reached out to Kraft executives, setting off a round of negotiations that ended in Wednesday’s announcement, according to comments made during a conference call with reporters.

If Kraft shareholders bite, the new Kraft Heinz Co. could come together in the second half of this year.

Officials said the blended company would have dual headquarters in Pittsburgh and the Chicago area.

“Understanding the need to preserve both Heinz and Kraft’s heritage in their respective hometowns of Pittsburgh and the Chicago area, the new company is committed to supporting local charities and community relationships in the communities in which they operate,” according to the official announcement.

Heinz CEO Bernardo Hees will become chief executive of the new company, with Kraft CEO John Cahill becoming vice chairman and Behring serving as chairman. Kraft will name five members to the company’s board, while Heinz will contribute the six members of its current board.

The blockbuster announcement comes a little more than two years after the private-equity partnership of Berkshire Hathaway and 3G Capital announced the acquisition of Heinz.

The earlier deal helped lay the groundwork for the Kraft move, according to officials with the two companies who spoke to analysts on a conference call.

After closing plants, slashing more than 6,600 jobs and restructuring the Heinz global operation, the Pittsburgh company recently reported a $657 million profit in 2014.

Now that Heinz has been made a leaner, more efficient organization, officials said, they can use its global infrastructure to help take Kraft brands into global markets where it is not a significant player.

While a well-known name in American grocery stores, Kraft as it now stands was formed in a spinoff of Kraft Foods Inc.’s North American grocery business in October 2012. At the same time, the former Kraft Foods Inc. changed its name to Mondelez International.