A string of kitchen staples such as Heinz ketchup and Philadelphia are to become part of the same company, after a $100bn (£68bn) deal engineered by legendary investor Warren Buffett and the Brazilian private equity company 3G to buy Kraft Foods.



Buffett and 3G are paying nearly $40bn to acquire Kraft, and will merge it with HJ Heinz, which was bought two years ago by the same two investors. The deal will create the world’s fifth largest food and beverage company – but immediately raised concerns about jobs in the combined workforce of around 50,000.

Kraft’s shares jumped 34% to $81 as investors reacted to the deal, under which shareholders in Kraft will share a $10bn cash payout.

“I am delighted to play a part in bringing these two winning companies and their iconic brands together,” said Buffett, who has stakes in a vast range of businesses through his Berkshire Hathaway conglomerate.

“This is my kind of transaction, uniting two world-class organisations and delivering shareholder value. I’m excited by the opportunities for what this new combined organisation will achieve,” he said.

The enlarged company will be known as the Kraft Heinz Company and will be the third largest food and beverage company in the US, with co-headquarters in the Chicago area and Pittsburgh, the respective home towns of both companies.

3G Capital is run by Brazilian former tennis player Jorge Lemann, who is now the country’s richest man with a fortune estimated at $25bn. Lemann, who also owns Burger King, built his empire on a beer business. He relocated to Switzerland after threats to kidnap his children.

The speed with which 3G Capital moved to cut costs following its acquisition of Heinz – replacing 11 of the 12 top bosses and cutting thousands of jobs – raised fears about further redundancies.

The former Heinz boss William Johnson was handed $110m for the last eight months of 2013 before he was replaced by Bernardo Hees, who will become chief executive of the new company. Hees said it was too early to say what the impact on jobs might be this time.

Heinz employs about 2,500 people in the UK and Ireland, including at Kitt Green, Wigan, Europe’s biggest food factory. The facility makes more than a billion cans of beans, soup and other products each year.

Julia Long, of the trade union Unite’s national officer for the food sector, said: “News of this merger is a bolt from the blue for our members at Heinz. They deserve better, and we will be fighting for a better deal for them.”



Kraft caused controversy by buying the UK’s confectionery company Cadbury in 2010. However, that business is not part of the deal as it was spun out into a separate company, called Mondelez, in 2012 and left Kraft largely to focus for growth on its domestic market in the US.

Hees played down questions about how long a structure with two head offices could be maintained, saying he would commute between the two cities, despite the pledge to take out $1.5bn of costs a year by the end of 2017. There were clues to some of the cost-cutting initiatives, such as zero-based budgeting, requiring each expenditure to be justified.

“It’s the press-release version of saying they’re going to fire people,” Meyer Shields, an analyst at Keefe Bruyette & Woods, told Bloomberg. “When you look at the fact that the deal is not accretive until 2017, that tells me that it’s only accretive after all these efforts to reduce expenses.”

Kraft shareholders are to share a special cash dividend of $10bn: $16.50 per share. Each of their existing shares will be converted into the equivalent number of shares in the enlarged company.

John Cahill, the boss of Kraft, said there would be opportunities for Kraft to grow outside the US, where its products can be found in 98% of households. He predicted the deal would force rivals to change, saying successful food and beverage companies needed to be “lean, nimble and global champions”, he said.

Heinz will own 51% of the enlarged company, which is to remain listed on the stock market. Buffett told CNBC: “We will be in the stock forever.”



The deal will unite Heinz tomato ketchup, baked beans and its infant foods along with its Weight Watchers brand with those owned by Kraft, which is best known for its cheese brands, including Cracker Barrel and Philadelphia together with Maxwell House, Capri Sun, Jell-O and Kool Aid. The new company will have eight $1bn brands and five valued at between $500m and $1bn.

Neil Saunders, managing director of UK retail consultancy Conlumino, said that while the brands were complementary, the deal would also help both companies to arrest their slowing sales. Kraft’s sales were flat last year and were forecast to rise 1% this year before the deal was announced.

“Both brands have suffered from a slowdown in sales and are now looking to provide investors with a new growth story. This merger provides just that and comes with the usual narrative that a larger company with a significant portfolio of brands will be able to compete more efficiently and effectively.”

Shareholders in Kraft and US regulators need to approve the deal, which is scheduled to complete later this year.

Kraft brands





Capri Sun

Jell-O

Cracker Barrel

Kool-Aid

Philadelphia

Planters

Tassimo

Heinz brands

Tomato ketchup

HP sauce

Heinz Beanz

Lea & Perrins

Daddies

Weight Watchers