- Freeimages.com/mikeccoH.J. Heinz Company and Kraft Foods have reached an agreement to merge the two food companies.
H.J. Heinz Company and Kraft Foods Group have entered into a definitive merger agreement to create The Kraft Heinz Company, forming the third largest food and beverage company in North America.
The combination of these food companies joins together two portfolios of brands. Together, the new company will have eight $1+ billion brands and five brands between $500 million and $1 billion. Among those are Kraft Foods’ Oscar Mayer, Louis Rich and Lunchables brand meat and poultry products. Kraft Foods is also the seventh largest turkey processor in the United States, processing 280 million pounds in 2014, according to the WATT Global Media Top Companies Database.
Under the terms of the agreement, which has been unanimously approved by both Heinz and Kraft’s Boards of Directors, Kraft shareholders will own a 49 percent stake in the combined company, and current Heinz shareholders will own 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.
The proposed merger creates substantial value for Kraft shareholders, the companies stated in a press release. The special cash dividend payment represents 27 percent of Kraft’s closing price as of March 24, 2015. Also, by continuing to own shares of the new combined company, Kraft shareholders will have the opportunity to participate in the new company’s long-term value creation potential.
Alex Behring, chairman of Heinz and the managing partner at 3G Capital, said: “By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth. 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.”
“Together we will have some of the most respected, recognized and storied brands in the global food industry, and together we will create an even brighter future,” said John Cahill, Kraft chairman and CEO. “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, as we bring Kraft’s iconic brands to international markets. We look forward to uniting with Heinz in what will be an exciting new chapter ahead.”
“We are thrilled about the unique opportunities this merger will create for our consumers worldwide, as well as our employees and business partners. Together, Heinz and Kraft will be able to achieve rapid expansion while delivering the quality, brands and products that our consumers love,” said Bernardo Hees, Heinz CEO. “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.”
Management and governance of The Kraft Heinz Company
When the transaction closes, Behring will become the chairman of The Kraft Heinz Company. Cahill will become vice chairman and chair of a newly formed operations and strategy committee of the board of directors.
Hees will be appointed CEO of The Kraft Heinz Company. The new executive team for the combined global company will be announced during the transition period, but no later than transaction closing.
The board of directors of the combined company 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.
The Kraft Heinz Company will be co-headquartered in Pittsburgh and the Chicago area.