Heinz, co-owned and run by Jorge Paulo Lemann’s 3G Capital has signed a definitive merger agreement with Kraft Foods Group Inc (NASDAQ:KRFT) in a deal that will result in Kraft merging with Heinz, which the Brazilian investment firm co-owns in equal parts with Warren Buffett’s Berkshire Hathaway. The two firms purchased the iconic food and condiment company for $23 billion in 2013. The current deal will pay Kraft shareholders $16.50 in cash, as well as shares in the newly-merged The Kraft Heinz Company, which will be the fifth-largest food company in the world, with annual revenues of approximately $28 billion. The news has sent shares of Kraft up by 34%, elevating Kraft’s market-cap to over $47 billion.
As with the Heinz deal, and given the financial enormity of the deal, 3G again required the backing of Warren Buffett, who helped to fund some of the firm’s past purchases, including the aforementioned Heinz purchase, and Burger King’s purchase of Tim Horton’s last year (3G owns 51% of the new entity). Buffett was also quoted as saying that he would consider working together with 3G again on the right friendly takeover opportunity in the future, should one present itself, which it clearly has. Buffett and 3G will equally cover the special cash dividend payment to Kraft shareholders, which will be approximately $10 billion.
Best known for its macaroni and cheese (which has become synonymous with that food product), Kraft Foods Group Inc (NASDAQ:KRFT) has done little to expand into markets outside of North America, while inside of it, it has experienced stagnant growth due to shifting consumer trends. The company’s revenue for fiscal 2014 was essentially flat at $18.21 billion, while net income fell by 62% on the year to $1.04 billion. Furthermore, among the company’s brands, which includes Jell-O, Maxwell House, and Oscar Mayer, none of them experienced market share growth within their individual market segments during the past year, while 40% of them lost market share.
It’s likely 3G Capital will work to restructure Kraft Foods Group Inc (NASDAQ:KRFT) similar to how it has Heinz, in which it has slashed hundreds of jobs and closed plants. Kraft’s CEO John Cahill had previously been asked about that mounting pressure being felt by the industry to cut overhead in the wake of the Heinz purchase, and agreed that there were many opportunities left for such cost-cutting endeavors at Kraft, without hurting revenues. Now those responsible for Heinz’ cuts will oversee the ones at Kraft, as the two companies will be integrated with each other, which is expected to produce significant synergy opportunities.
Investors who stood to gain the most from the huge spike in Kraft’s shares today were Phill Gross and Robert Atchinson’s Adage Capital Management, and billionaires Ken Griffin and Israel Englander, who were the top three shareholders of Kraft at the end of 2014, among the funds we track. Adage held 2.57 million shares, while Griffin and Englander held 1.74 million and 1.43 million shares respectively. Overall fund ownership stood at 36 funds at the end of the year, compared to 37 at the end of the third quarter, while the value of capital increased to $744 million from $645 million.