Kraft Foods Group, Inc.’s KRFT shareholders approved its pending merger with H.J. Heinz Company to form The Kraft Heinz Company, thereby paving the way for the transaction to be closed after market closes on Jul 2.
More than 98% of votes cast at the shareholders meeting were in favor of the deal, representing more than 69% of Kraft’s outstanding shares. The closure of the transaction is subject to certain closing conditions.
Kraft announced the definitive deal to be acquired by Heinz in March this year. The merger, reportedly valued at $46 billion, is likely to create the third largest food and beverage company in North America.
The deal is being backed by Brazilian private equity firm, 3G Capital, and billionaire investor, Warren Buffet. Heinz is jointly owned by 3G Capital and Buffet’s Berkshire Hathaway, Inc. BRK.B. The investment companies acquired Heinz for $28 billion in 2013.
Kraft shareholders will own 49% stake in the combined entity and receive a special cash dividend of $16.50 per share. Heinz shareholders will own 51% stake in the new company.
Earlier this week, Kraft Heinz announced its senior leadership team which will be dominated by present executives from Heinz including chief financial officer Paulo Basilio. He holds the same position at Heinz.
Kraft has been struggling with its top line ever since it split from Mondelez International, Inc. MDLZ in 2012 due to broader macro pressures. This merger will bring popular consumer food brands like Heinz, Kraft, Oscar Mayer, Ore-Ida and Philadelphia under one roof. Kraft Heinz will own eight Billion Dollar brands and is expected to garner approximately $28 billion in revenues.
The merger is likely to result in revenue synergies such as increased scale and additional shelf space. Additionally, Kraft’s brands will get exposure in the overseas markets leveraging Heinz’s international platform. Kraft Heinz is also expected to save $1.5 billion in annual costs by the end of 2017 gaining from increased scale and possibly aggressive cost cuts.
3G Capital, co-founded by Brazilian billionaire Jorge Paulo Lemann, is a global investment firm known for buying iconic brands and then growing them while aggressively slashing costs. It held approximately 70% stake in fast food chain, Burger King, before merging it with Canadian doughnut chain, Tim Hortons, to form Restaurant Brands International QSR, last year.
In 2008, 3G Capital took over American brewer, Anheuser-Busch, and merged it with Belgian-Brazilian brewer, InBev, to form Anheuser-Busch InBev SA/NV, the world’s largest brewer. 3G Capital had a significant stake in InBev.
Kraft carries a Zacks Rank #3 (Hold).
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