Craig Giammona New York
3G Capital, the Brazilian private equity firm, agreed to acquire Kraft Foods Group in partnership with Warren Buffett’s Berkshire Hathaway and merge it with tomato sauce maker HJ Heinz.
Kraft shareholders would receive 49 percent of the stock in the combined company, plus a special cash dividend of $16.50 (R194) a share, the companies said yesterday. Berkshire and 3G will invest another $10 billion in the combined company.
“This is my kind of transaction, uniting two world-class organisations and delivering shareholder value,” Buffett said. “I’m excited by the opportunities for what this new combined organisation will achieve.”
The current Kraft was created in a spin-off from Mondelez International in October 2012. Mondelez inherited the company’s overseas snack businesses, giving it bigger growth opportunities internationally. Kraft, meanwhile, is focused on the US.
While Kraft has a stable of household brands, including Velveeta and Philadelphia Cream Cheese, the company has struggled to reignite sales growth in a mature market.
Kraft closed at $61.33 in New York trading on Tuesday, giving the company a market value of about $36bn.
Kraft management also has been in turmoil in recent months. Chief executive Tony Vernon stepped down in December, with chairman John Cahill taking over the job.
Brian Yarbrough, an analyst with Edward Jones in St Louis, speculated at the time that Vernon was pushed out due to poor performance. The company’s top finance and marketing executives also left last month, and Kraft added the role of chief operating officer.
Younger consumers in the US have shown a preference for natural and organic ingredients – something Kraft has had to adjust to. In addition, rising commodity prices have squeezed the company, according to Yarbrough.
The company also had an embarrassing product recall this month after customers found metal pieces in its hallmark Macaroni and Cheese. Kraft recalled 6.5 million boxes of the product.
Berkshire Hathaway teamed up with 3G Capital two years ago to acquire Heinz and then helped finance 3G-owned Burger King Worldwide’s purchase of Canadian coffee-and-doughnut chain Tim Hortons.
Since those deals, speculation has simmered about what they will buy next – be it Kellogg, Kraft or Mondelez. Buffett stoked the conversation with his annual letter to Berkshire shareholders, saying he expects to “partner with 3G in more activities”.
Berkshire has been a longtime investor in Kraft, tracing back to a stake in its predecessor company, part of Buffett’s investments in well-known consumer businesses. – Bloomberg