Heinz and Kraft have just announced a merger that will make the unified companies into the fifth-largest food and beverage company in the world, according to a press release.
Berkshire Hathaway and 3G Capital are investing $US10 billion in the combined company, which will be called The Kraft Heinz Company.
Kraft is a $US36 billion company that makes Velveeta cheese and Oscar Mayer meats. Heinz is known for its ketchup.
The combined companies will generate about $US28 billion in annual revenues.
Each Kraft shareholder will get a $US16.50 cash dividend, according to the release. Shareholders will also have a 49% stake in the combined company.
Existing Heinz shareholders will own 51% of the new company, according to the release.
“I am delighted to play a part in bringing these two winning companies and their iconic brands together,” Berkshire Hathaway CEO Warrenn Buffett said in a statement.
“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.”
After reports of the merger surfaced on Tuesday, shares of Kraft rose as much as 16.5% to $US71.44 in trading after the bell, according to Reuters.
Kraft is now up 15% pre-market:
Here’s the official release:
PITTSBURGH and NORTHFIELD, Ill., March 25, 2015 /PRNewswire/ — H.J. Heinz Company and Kraft Foods Group, Inc. (NASDAQ:KRFT) today announced that they have entered into a definitive merger agreement to create The Kraft Heinz Company, forming the third largest food and beverage company in North America with an unparalleled portfolio of iconic brands.
Under the terms of the agreement, which has been unanimously approved by both Heinz and Kraft’s Boards of Directors, Kraft shareholders will own a 49% stake in the combined company, and current Heinz shareholders will own 51% on a fully diluted basis. Kraft shareholders will receive stock in the combined company and a special cash dividend of $US16.50 per share. The aggregate special dividend payment of approximately $US10 billion is being fully funded by an equity contribution by Berkshire Hathaway and 3G Capital.
The proposed merger creates substantial value for Kraft shareholders. The special cash dividend payment represents 27% of Kraft’s closing price as of March 24, 2015. Also, by continuing to own shares of the new combined company, Kraft shareholders will have the opportunity to participate in the new company’s long-term value creation potential.