Kraft and Heinz merger to create food giant

Heinz is buying Kraft Foods to create the world’s fifth largest food and beverage company.

The Kraft Heinz Company will have revenues of about $28 billion, according to a statement from both companies.

Kraft shareholders will receive stock in the new group, plus a special dividend of $16.50 per share funded by a $10 billion cash injection by Heinz owners 3G Capital and Warren Buffett’s Berkshire Hathaway.

Once the deal is done, Heinz shareholders will own 51% of the combined firm while Kraft shareholders will get a 49 per cent stake.

“By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth,” Heinz chairman and 3G managing partner Alex Behring said. “Our combined brands and businesses mean increased scale and relevance both in the U.S. and internationally.”

University of Toronto business professor Rafael Gomez says that the merger makes sense for these large holding companies that have established brands.

“They are not growing particularly fast, these are mature markets where the growth potential isn’t there but the profit potential is huge,” he says.

Reports of a deal first came after markets closed on Tuesday in New York. Kraft ended the trading day at $61.33, valuing the company at $36 billion. Kraft shares surged by as much as 18% in premarket trading.

This isn’t the first time that Buffett has worked with 3G Capital. In 2013, they teamed up to acquire Heinz.

Berkshire Hathaway also helped 3G Capital finance Burger King’s purchase of Canadian chain Tim Hortons last year.

Kraft owns popular brands such as Jell-O, Maxwell House coffee and Planters peanuts.

Just last week, Kraft recalled 240,000 cases of macaroni and cheese, because some boxes may have been contaminated with pieces of metal.

Gomez says a better strategy would be to look around the GTA at smaller markets who are making innovative products and encourage them to grow.