The takeover will create the world's fifth largest food and beverage company, Kraft Heinz. Analysts expect more M&A in the packaged food sector. Fred Katayama reports.
Chalk up another iconic American brand for investor Warren Buffett: Kraft. His Berkshire Hathaway and private equity firm 3G Capital are buying Kraft Foods and merging it with their company, H.J. Heinz. That'll create the world's fifth largest food and beverage company with $28 billion in revenue. The Kraft Heinz company combines Heinz's Ketchup and Classico sauces with Kraft's Oscar Mayer meats and Mac & Cheese. The deal comes just as Kraft battles sluggish U.S. sales amid changing consumer tastes. Heinz shareholders get the upper hand with a 51 percent stake in the combined company, and Heinz's CEO, Bernardo Hees, will run it. Kraft shareholders will get one share of Kraft Heinz and a special $16.50 a share cash dividend that's a 27 percent premium to Tuesday's closing price. Buffett and 3G are forking over $10 billion to pay that premium. Kraft's beleaguered shares rocketed higher at the open. Investors also drove up shares of rivals ConAgra, General Mills and Mondelez. Credit Suisse analyst Robert Moskow says this deal could put packaged food companies into play, saying, "3G's access to capital through Berkshire and others gives it plenty of ammunition to make additional acquisitions in the future." Kraft's new owner, 3G, is fixated on slashing costs at the food companies it buys, such as Anheuser-Busch and Burger King. It sees $1.5 billion in annual savings over two years in Kraft Heinz.