Food companies Heinz and Kraft set to merge

Two global food companies, Kraft and Heinz, are set to merge to create the world’s fifth largest food group.

Kraft’s share price surged after a deal was announced for the group to merge with food giant, Heinz, in a move worth $46 billion that will create the third-largest food and drinks company in the US and the fifth largest in the whole world.

The deal was crafted by Warren Buffett alongside Brazilian investment firm 3G Capital, the owners of Heinz, and will “unite two-world class organisations” in order to deliver shareholder value, according to Mr Buffett.

"This is my kind of transaction,” he added. “I'm excited by the opportunities for what this new combined organisation will achieve."

The merge is set to cut costs by $1.5 billion

3G Capital has previous experience with introducing aggressive cost cuts and improving efficiencies, and one of the main goals of this merger is cost saving. It’s expected that the combined firm will cut annual costs by $1.5 billion by the end of 2017, while combined sales will amount to around $29 billion.

"By bringing together these two iconic companies through this transaction, we are creating a strong platform for both US and international growth," said Alex Behring, chairman of Heinz and the managing partner at 3G Capital.

Shareholders of Heinz will own 51 per cent of the merged company and Kraft shareholders will own the remaining 49 per cent stake. Furthermore, Kraft shareholders will receive a special cash dividend of $16.50 per share as part of the deal, which will be funded by Mr Buffett’s Berkshire Hathaway and 3G Capital.

Deal to be finalised this year

The deal is still awaiting approval from regulators and shareholders of Kraft, but it has already been unanimously approved by the boards of both companies. It’s expected that the deal will be finalised in the second half of this year.

"We look forward to uniting with Heinz in what will be an exciting new chapter ahead," said John Cahill, Kraft chairman and chief executive.