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    H.J. Heinz, Kraft Foods Merge To Form The Kraft Heinz Co.

    Deal will create N.A.'s 3rd largest food & bev company

    Inking a deal that the "Oracle of Omaha," Warren Buffett, chairman and CEO of Berkshire Hathaway, declared to be "my kind of transaction," two of the most iconic names in the food industry – H.J. Heinz Co. and Kraft Foods Group – announced a definitive merger agreement that's poised to create global portfolio of powerhouse brands.

    The combined companies, whose new moniker is The Kraft Heinz Co., will be co-headquartered in Pittsburgh and the Chicago area, and will create the third largest food and beverage company in North America and the fifth largest such organization in the world, bringing together an unparalleled portfolio of iconic brands – eight of which are valued at $1 billion-plus each and another five sister brands valued between $500 million and $1 billion – under the same corporate roof.

    Terms of the deal, which have been approved by the boards of directors of both CPG giants, will find Kraft shareholders owning a 49 percent stake in the combined company, and Heinz shareholders controlling 51 percent on a fully diluted basis. Kraft shareholders will receive stock in the combined company and a special cash dividend of $16.50 per share. The aggregate special dividend payment of approximately $10 billion is being fully funded by an equity contribution by Berkshire Hathaway and 3G Capital.

    Upon the deal's completion, Heinz CEO Bernardo Hees will take the reins of The Kraft Heinz Co. as CEO. 

    Additionally, Alex Behring, chairman of Heinz and managing partner at 3G Capital, will become chairman of the merged companies. Kraft Chairman/CEO John Cahill will be named vice chairman and chair of a newly formed operations and strategy committee of the board of directors. The board will consist of five members appointed by the current Kraft board, as well as the current Heinz board, including three members from Berkshire Hathaway and three members from 3G Capital.

    Global Brand Portfolio Powerhouse

    "By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth," said Behring. "Our combined brands and businesses mean increased scale and relevance both in the U.S. and internationally. We have the utmost respect for the Kraft business and its employees, and greatly look forward to working together as we integrate the two companies."

    Meanwhile, Berkshire Hathaway's Buffett – who recalls reading Progressive Grocer as a young boy, according to the 2008 book authored by his cousin Bill Buffett, "Foods You Will Enjoy: The Story of Buffett's Store" – said he's "delighted to play a part in bringing these two winning companies and their iconic brands together. This is my kind of transaction, uniting two world-class organizations and delivering shareholder value. I'm excited by the opportunities for what this new combined organization will achieve."

    Hees concurred: "Together, Heinz and Kraft will be able to achieve rapid expansion while delivering the quality, brands and products that our consumers love," he said, adding that over the past two years, "We have transformed Heinz into one of the most efficient and profitable food companies in the world while reinvesting behind our key brands and continuing our relentless commitment to quality and innovation."

    Added Cahill, "This combination offers significant cash value to our shareholders and the opportunity to be investors in a company very well positioned for growth, especially outside the United States."

    According to the companies, the merger will bring synergies of an estimated $1.5 billion in annual cost savings, to be realized by the end of 2017, driven by the increased scale of the new organization, as well as sharing best practices and cost reductions.

    The merger is expected to close in the second half of 2015, pending approval by Kraft shareholders, regulatory approvals and customary closing conditions. 

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