March 30, 2015
When I was younger my two favorite foods were macaroni and cheese and hot dogs. When my mother would make Kraft Macaroni and Cheese it wasn't complete until I had it with ketchup and when my father would grill Oscar Mayer hot dogs those were incomplete until they were decorated with Heinz ketchup or mustard. This week some of my childhood dreams came true when 3G Capital, a Brazilian private investment group, struck a deal with Warren Buffett's Berkshire Hathaway to merge Kraft with Heinz. Once combined, the Kraft Heinz Company will create one of the largest food and beverage conglomerates in the world.
3G Capital has been a busy company focusing on taking ownership of multinational companies. In 2008 3G took over Anheuser Busch, and created the world's largest brewer Anheuser-Busch InBev. The company struck again last year when they merged Burger King with Tim Horton's to form the new company, Restaurant Brands International. And now, the merger of Kraft and Heinz will create the third largest food and beverage company in America and the fifth largest in the world.
As a result of the merger, Heinz will control 51 percent of the new company and Kraft will own the remaining 49 percent. Kraft shareholders will receive a special cash dividend of $16.50 per share that will be paid for by 3G Capital and Berkshire Hathaway. This merger represents a huge bet on processed and packaged food that has been losing ground to more healthful options. The companies estimate they can find savings of $1.7 billion per year by 2017 due to cost cutting measures and efficiencies of scale.
As a disclaimer, I should state that I no longer eat macaroni and cheese with ketchup but for all of the parents out there--I'm sure your children are mixing odd foods, they might be on to something that could help your retirement portfolio.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).