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Warren Buffet Helps Make the Kraft and Heinz Merger Happen

Image via Flickr by Jeepersmedia

In 2015, Kraft and Heinz will merge to create the third-largest food and beverage company in the U.S. The deal is backed by a $10 billion investment from 3G Capital and Warren Buffet’s Berkshire Hathaway Inc. The company’s new name will be “Kraft Heinz Co.,” and corporate offices will be located in both Pittsburgh and Chicago.

Back in 2013, Warren Buffet’s company teamed up with Jorge Paulo Lemann’s 3G to buy Heinz. Together, they consolidated costs and improved profits. The pair plan to do the same thing with the Kraft merger. Analyst David Turner from Mintel (research firm) said, “3G has squeezed a lot out of Heinz and now they will do the same job at Kraft. When Buffet invests in a sector, it gives a sign that the sector is ripe for acquisitions. This will flag up other opportunities.”

Before the merger, Kraft had a value of $49 billion. Kraft shareholders will receive 49 percent of the stock in the new company, as well as dividends of $16.50 per share. Heinz Chairman Alex Behring will become chair of the new company and Kraft Chairman John Cahill will become vice chairman. The entire executive committee has not been announced yet.

Kraft has had a difficult time with growth over the past couple of years. This is partly because consumers are opting for more natural and organic products. Warren Buffet plans to cut costs by $1.5 billion per year to boost profits and accelerate growth. Additionally, Heinz already has a foot in the international market, and this will help Kraft products expand their reach considerably.

Buffet seems to be taking an interest in the food and beverage industry, raising speculation about what he’ll purchase next. It could be Kelloggs, Campbell Soup, or one of many other companies that have a share of the industry. Larger companies have an easier time with profits because they can streamline their shipping and logistics.

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