Kraft Foods Group Inc announced on Wednesday that it had agreed to a merger with H.J. Heinz, which is evenly owned by 3G Capital and Berkshire Hathaway.
The combined entity would be the third-largest food and beverage company in North America and the fifth-biggest in the world with around $28 billion in revenue, Kraft said in a statement.
Under the stock-and-cash deal, Kraft shareholders will receive a special dividend of $16.50 per share upon closing and collectively own a 49% stake in the new company, named Kraft Heinz. Additionally, 3G Capital and Berkshire Hathaway will invest $10 billion in the merged company.
Kraft Heinz will own eight brands worth more than $1 billion and five smaller brands valued between $500 million and $1 billion, the companies said.
3G Capital and Berkshire Hathaway acquired ketchup maker Heinz in 2013 for $23.2 billion and earlier this year Mr. Buffet said he was considering teaming up with 3G capital again.
The companies projected “significant synergies” and projected strong growth in North America for Kraft Heinz. The new company would utilize the freed up funds to boost its marketing and innovation efforts. The companies estimated $1.5 billion in annual cost saving by the end of 2017.
Kraft will also benefit from the global presence of Heinz as it faces sluggish sales growth at home. Krafts products, which can be traced back to 1903, have a tough time competing for younger customers as they have proved to prefer fresher, natural and organic foods. Krafts reputation was further hurt after it recalled 6.5 million Macaroni and Cheese boxes earlier this month.
Kraft Heinz will be co-headquartered in Pittsburgh and the Chicago area. Bernardo Hees, currently chief executive of Heinz, is set to take the wheel once the transaction is completed. The new entitys board will consist of five member which will be appointed by the companies current boards.
“I am 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,” said Berkshire Hathaways CEO Warren Buffet.
Kraft Foods lost 1.28% on Tuesday and closed at $61.33 on the NASDAQ, marking a one-year increase of 10.62%. The company is valued at $36.07 billion. On Wednesday the stock skyrocketed 34.58% to $82.53 during pre-market trading.
According to the Financial Times, the 14 analysts offering 12-month price targets for Kraft Foods have a median target of $65.50, with a high estimate of $73.00 and a low estimate of $55.00. The median estimate represents a 6.81% increase from the last closing price.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
