Kraft foods and H J Heinz, two icons of the American food industry, are merging in a blockbuster deal involving the billionaire Warren E Buffett and the Brazilian investment firm 3G Capital, creating what will be the fifth-largest food and beverage company in the world.
In addition to its ketchup, Heinz sells sauces, soups, beans, pasta and Ore-Ida potatoes, among other food brands. Kraft’s brands include Jell-O, Kool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia, Planters and Velveeta. The combined company will have revenues of about $28 billion, with eight individual brands each reporting sales of at least $1 billion a year, and five brands with between $500 million and $1 billion in sales.
Heinz, which is owned by 3G Capital and Buffett’s Berkshire Hathaway, will control 51 per cent of the combined company, while Kraft shareholders will own 49 per cent.
As he did in with Heinz, Buffett played a significant role in bringing the deal together. His company, Berkshire Hathaway, is investing alongside 3G Capital again, and will help pay for the dividend for Kraft shareholders.
“I am delighted to play a part in bringing these two winning companies and their iconic brands together,” Buffett said in a statement. “I’m excited by the opportunities for what this new combined organisation will achieve.”
From its base in Brazil, 3G has become a powerhouse in the world of food brands. The firm, which counts the billionaire financier Jorge Paulo Lemann among its owners, has made daring moves for companies like Burger King, which it bought in 2010. Two years ago, 3G and Buffett – a public admirer of Lemann and his firm – teamed up to buy Heinz for $23 billion. Last summer, 3G, through Burger King, bought the Canadian coffee-and-doughnut chain Tim Hortons for about $11.4 billion, with the aim of creating a global fast-food empire whose offerings stretch from breakfast to dinner.
Kraft is the product of a 2012 split that created Mondelez International. The company has been wrestling with low margins and flat sales amid the shifting tastes of consumers.
The combined company will have co-headquarters in the Chicago and Pittsburgh areas.
The merger of Kraft Foods and Heinz from an India point of view could mean a combined portfolio including products such as Kraft cheese, Heinz ketchup, Complan, Glucon-D and Nycil.
While Kraft cheese is available in India mostly through local distributors, industry sources say there is no reason why Heinz may not take up formal distribution of the popular dairy brand, given its familiarity with Indian consumers.
In 2010, when Kraft acquired Cadbury’s, the ensuing integration process saw brands such as Tang and Oreo being pushed by the latter in the Indian market. Till then, these products, which belonged to Kraft, were distributed by local partners.
Cadbury India, which is now called Mondelez International, went on to add Toblerone to this list, available till then through local distributors, much like Tang and Oreo. This way Mondelez (or the erstwhile Cadbury) was able to expand its product portfolio, which is something that Heinz could emulate, industry sources say.
