Everything You Need to Know About the Heinz Kraft Merger

Ever since news broke at 5:30AM Tuesday morning that Heinz, owned by Berkshire-Hathaway (BRK.A), is buying out Kraft Foods (KRFT), Investorguide.com has been looking through the S-4 filings and accompanying paperwork. We've gone through hundreds of pages of documentations and pulled out the core facts that every investor needs to know about the upcoming merger.

The Heinz Kraft Merger Will Create The Third-Largest Food Company In America

Judging solely on combined assets, the company formed when Berkshire-owned Heinz buys Kraft will be the third-largest food conglomerate in America.
The only larger corporations are PepsiCo (PEP) and privately-held Dole. Heinz-Kraft is set to overtake General Mills (GIS) as number 3.

Heinz Market Valuation Is A Big Unknown

Despite the fact that Heinz is a very strong brand with many popular products, the company isn't currently being traded publicly. The S-4 disclosure gets into the nuts and bolts of Heinz's financial outlook, and everything seems positive, but if there are any surprises going forward they're likely to come from the Heinz side of things, and not Kraft.

Principal Players Are Kraft, Berkshire-Hathaway, and 3G

Since Warren Buffett's Berkshire-Hathaway is in control of Heinz, they are really the principal player in this deal. Berkshire has made Kraft shareholders an offer that they can't refuse. Brazilian investment bank 3G capital is also coming onboard in order to provide liquid capital and underwriting for the massive transaction.

The Heinz Kraft Merger Has Been Valued At $70 Billion

Berkshire is spending billions in liquid capital, along with preferred and common stock valued at $1 billion in order to get the deal off of the ground. Brazilian venture capitalist group 3G is also kicking in another $10 billion for a stake in the final business.

Kraft's Investors Are Being Made Whole, And Then Some

If you currently hold Kraft stock, then you're in luck. Shares will be converted 1:1 for shares in Heinz, which is par for the course in a deal like this. It will also mark the first time that Heinz is being listed as a publicly traded company, after over 100 years of being exclusively in private hands. Kraft investors will have a 49% stake in the company, while Berkshire controls 51%.

Approval Is Still Pending, But The Signs Are Positive

The board of directors at Kraft and Heinz have both unanimously approved the merger. The only potential sticking point is with the standard regulatory approval process, which is expected to be completed by the end of 2015.

The Heinz Kraft Merger Will Save Both Companies Money

Through the consolidation of personnel and supply chains -- one of the hallmarks of any Berkshire deal -- both companies will come out ahead of the game. According to the S-4, the total savings will be in the neighborhood of $1.5 billion per year.

The Deal Unites A Host Brands Under One Roof

After the paperwork is finalized, Heinz will own some of America's most popular brands including Ore-Ida, Oscar Mayer, and cream-cheese producer Philadelphia. All told, Heinz will be managing more than 15 national brands with yearly sales between $1.5 billion and $150 million.

What Does All Of This Mean To The Average Investor?

If you're already holding onto Kraft stock, the safe move is to keep it. One of the things that Berkshire and the existing management at Heinz is trying to do is make this merger as painless as possible for existing Kraft shareholders. There will likely be big deals in place to make sure that whoever currently has stock in Kraft has every incentive to hold onto it. At the time of this writing, nobody has advised raft shareholders to sell their position in the company despite the fact that stock prices are climbing.

If you're lucky enough to already own a portion of Kraft Foods, the smart move is to hold onto it -- and collect your $16.50 per share special dividend -- at least until further details about the merger and new management team fall into place.
Published on Mar 27, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2020. Content published with author's permission.

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