The industry is abuzz with a merger between two food giants, Kraft Foods Group and the H.J. Heinz Co. and its impact, pending potential antitrust criticism, could have far-reaching effects, impacting everything from ketchup to Jell-O. To further underscore the deal, Kraft's stock hit $87.44 at 11:35 a.m. Wednesday.
The blockbuster deal — morphed from the work of 3G and Warren Buffett’s Berkshire Hathaway — will see revenue around $28 billion. It’ll be the third largest food and beverage company in North America, fifth in the world. Bernardo Hees, Heinz’s CEO, will be CEO of the newly formed company.
What does this mean?
Forbes called this merger “the biggest stock deal of [Buffett’s] legendary career,” at approximately $40 billion, and offers some commentary on the other side of what many may be thinking, referring to Buffett as a hypocrite. The piece mentions Buffett’s annual shareholder letter as possibly good news for Kraft investors.
“Trading shares of a wonderful business – which Berkshire most certainly is – for ownership of a so-so business irreparably destroys value… Too often CEOs seem blind to an elementary reality: The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive,” according to the letter.
“This is my kind of transaction, uniting two world-class organizations and delivering shareholder value,” Buffett said in a statement, according to Brand Channel.
Kraft's struggled to keep up with consumer health concerns. Two weeks ago, it was announced Kraft Singles would snag the "Kids Eat Right" moniker from the Academy of Nutrition and Dietetics and was subject to much backlash. Fortune notes 3G "now owns close to everything a helicopter mom abhors."
Reuters wrote the deal is not likely to face much antitrust criticism as there is not much item overlap.
Also, with no new debt in the deal, Fortune’s Dan Primack notes there’s room for more acquisitions, speculating Campbell’s Soup as a potential one.
If one thing’s for certain, it’s that the industry is headed for yet another bout of undeniable evolution.
The history of 3G and job cuts
If previous 3G intervening is any indication, its companies could see harsh job cuts. Fortune notes when InBev took over Anheuser-Busch, 1,400 jobs were slashed — three-quarters of which hit St. Louis. Heinz too saw cuts, including the ousting of 11 out of 12 of the top executive team following a Heinz leadership conference by Hees. 3G teamed up with Warren Buffett on Burger King’s Tim Hortons purchase, in addition to Heinz.
Analysts have labeled elements like this “the 3G way,” according to Fortune, though Jorge Paulo Lemann notes how American business-style has inspired the firm.
This Kraft-Heinz merger has apparently been discussed for a number of years, according to The New York Times. Once 3G Capital and Warren Buffett’s Berkshire Hathaway acquired Heinz, Kraft was seen as a perfect company to merge with, and once Kraft’s new CEO was in place, 3G and Buffett went to the company regarding the subject. Buffett told CNBC talks started just four weeks ago.
Heinz is more robust on an international scale, while Kraft, formed in the aftermath of the separation that spun Mondelez International, mostly sells in the U.S.