Merger of Kraft and Heinz Company

Abstract

Through a series of transaction, the merger of Kraft Foods Group Inc. (Kraft) and the wholly owned subsidiary of H. J. Heinz Holding Corporation was consummated and completed on July 2, 2015. Following the merger, the company was reorganized into three reportable segments which were defined by geographic regions. The three regions were the United States, Canada, and Europe. The remaining businesses were combined and put under “Rest of World”. The merged company had approximately $28 billion with 8 $1 + billion brands and 5 brands between $500 million and $1 billion. The deal was valued at $45 billion. Under the terms of the merger, the existing Heinz shareholders held 51% stake in the newly formed company. The Kraft shareholders received 49% of shares in the combined company. The merger resulted in the creation of the third largest food and beverage company in North America and fifth largest food and beverage company in the world. The combination of Kraft’s brands with Heinz’s international brands provided a strong platform for organic growth in North America. The merger was expected to realize cost synergies of $1.5 billion in annual cost savings by the year 2017. The cost synergies were attributed due to economies of scale from the North American market. Cost savings were realized due to the new firm’s capacity to refinance Heinz high yielding debt. The total assets of the company increased by two times in the year after merger (2016) compared to the year before merger (2014). The cumulative returns during the merger period July 2015–March 2016 were approximately 7.1%.