Heinz cooks up mega merger with Kraft

Heinz ketchup bottle.

Heinz ketchup bottle. - Credit: AP

Heinz is set to buy Kraft in a deal that will gather some of the UK's best-known grocery brands within one of the biggest food firms in the world.

Heinz factory at Westwick near North Walsham.Picture: ANTONY KELLY

Heinz factory at Westwick near North Walsham.Picture: ANTONY KELLY - Credit: Archant

The new firm - to be called the Kraft Heinz Company - will become one of the largest food companies in the world with annual revenue in excess of 28 billion US dollars (£18 billion).

It was engineered by Heinz's owner, the Brazilian investment firm 3G Capital, and billionaire investor Warren Buffett's Berkshire Hathaway.

Both companies' boards have unanimously approved the deal, which is targeted to close in the second half of the year. It still requires approval from Kraft shareholders.

The announcement follows Heinz's decision to shut down its Norfolk operation near Worstead, sparking the loss of 200 jobs. Closure of the long-running factory was proposed in October after Heinz lost a major contract from the William Jackson Food Group to produce frozen potato products for the Aunt Bessie's range. It is expected to wound down by April.

Current Heinz shareholders will own 51pc of the combined company, with Kraft shareholders owning a 49pc stake.

Kraft's high-profile brands are Philadelphia, Dairylea cheese triangles and Capri Sun fruit juice. It also owns Maxwell House coffee.

Most Read

It is best known in the UK for its controversial takeover of chocolate-maker Cadbury in 2010 for £11.5 billion.

In 2012 it announced that Cadbury would become part of its spin-off business Mondelez, alongside other brands such as Trident gum and Oreo biscuits.

Heinz is best known for its beans, or 'beanz' as it likes to spell them, and ketchup, HP Sauce and Lea & Perrins.

It still uses the '57 sauces' logo despite having more than 5,700 products worldwide - a throwback to founder Henry J Heinz believing it to be a lucky number.

UK consumers are likely to be most familiar with Heinz soup, tinned pasta, mayonnaise and salad cream. It also sells a range of products for babies and toddlers.

Neil Saunders, managing director of retail consultancy Conlumino, said: 'In many ways the marriage of Kraft and Heinz is a sound one: the companies complement each other in terms of the brands they own, the geographies they operate in, and there are undoubtedly synergistic cost savings that can be found.

'However, as much as this is so, the tie-up is also one of convenience. Both brands have suffered from a slowdown in sales and are now looking to provide investors with a new growth story. This merger provides just that and comes with the usual narrative that a larger company with a significant portfolio of brands will be able to compete more efficiently and effectively.'

He added: 'As much as the merger will provide opportunities, not least to enhance short-term earnings for investors, it is not a magic wand that can wave away the underlying problems of either company. Heinz, and especially Kraft, both need to invest in brands, in marketing and, most critically, in product innovation if they are to remain relevant to consumers around the world.

'Unlike cost savings, this is not something that a merger automatically delivers.'