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Heinz merging with Kraft in $36B deal to create food giant

By
Associated Press
Published March 25, 2015, 8:14 a.m. ET

H.J. Heinz Co. is Merging with Kraft Foods in a $36 billion deal to create 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 35 percent in Wednesday morning trading.

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 percent of the combined company, with Kraft shareholders owning a 49 percent 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 Buffett in a printed statement. “Uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.”

Heinz CEO Bernardo Hees will become CEO, while Alex Behring, Heinz chairman and managing partner at 3G Capital, will be chairman. Kraft CEO and Chairman John Cahill will become vice chairman.

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.

Here’s a look at companies and brands that will be combined under the Heinz-Kraft deal:

NAME: H.J. Heinz Co.

LOCATION: Pittsburgh

EMPLOYEES: 24,500

NET INCOME: $657.1 million (2014)

REVENUE: $10.9 billion (2014)

BRANDS: Classico pasta sauce, Heinz Ketchup, Ore-Ida, Lea & Perrins, Bagel Bites, Nurture infant formula, Weight Watchers Smart Ones, and Golden Circle.

NAME: Kraft Foods Group Inc.

LOCATION: Northfield, Illinois

EMPLOYEES: 22,100

NET INCOME: $1.04 billion (2014)

REVENUE: $18.2 billion (2014)

BRANDS: A1, Athenos, Breakstones, CapriSun, Cheez Whiz, Cracker Barrel, Cool Whip, Country Time Lemonade, Jell-O, Kool Aid, Maxwell House, Oscar Mayer, Planters, Stove Top and Velveeta.