Article / 25 March 2015 at 11:01 GMT

Kraft Foods/Heinz $45 billion merger edges closer

Former managing editor, TradingFloor.com / Saxo Bank
Denmark
  • Heinz to buy Kraft Foods Group in mega $45 bn deal
  • Deal engineered by Heinz owner, 3G Capital
  • Kraft shareholders to get stock in merged company, cash dividend of $16.50/share
  • Deal subject to approval of Kraft shareholders
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So are those Heinz beans or Kraft beans? photo: istock

By Martin O'Rourke

Imagine it. Kraft Ketchup and Heinz Philadelphia cheese.

Well, merger or no merger, those brand names are unlikely to change in the foreseeable but if Heinz's audacious $45 billion-estimated swoop for rival Kraft Food comes off, we are talking about the creation of the third largest food and beverage company in North America and a real game changer in the global market.

Kraft's NASDAQ-listed share price has certainly been boosted by the breaking news. It closed yesterday at $61.33 but surged 16.8% pre-market to $71.63 as investors swooped to grab a piece of the action.

And it does look like some deal. Kraft shareholders will get a special cash dividend worth $10 billion, $16.50/share in a deal that will see Heinz take a 51% share to existing Kraft shareholders 49%.

Heinz owner 3G has teamed up with Warren Buffet's Berkshire Hathaway to effect the deal which is expected to close in the second half of the year, after both boards approved the merger. 

Buffet's involvement is effectively a green light for the deal, says Saxo Bank's head of macro strategy Mads Koefoed.

"When Warren Buffett and Berkshire Hathaway teamed up with 3G Capital in 2013 to buy HJ Heinz, he said: 'I'm ready for another elephant. Please, if you see any walking by, just call me,'" said Koefoed. "That other elephant appears to be Kraft Foods."

"The company has just announced that it will merge with HJ Heinz in a deal totalling around $45 billion," said Koefoed. "That is one mighty elephant, but considering Buffett's track record, it would take guts to bet against him."

Kraft shareholders are still to approve the deal. The deal will see the current Heinz CEO Bernardo Hess assume the mantle once the merger is complete.

The companies expect the merger to start adding to EPS by 2017. 

Martin O'Rourke is managing editor of TradingFloor.com

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