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Introduction
The merger of Heinz and Kraft, finalized on July 2nd, was one of the largest mergers to take place in 2015. Warren Buffet via Berkshire Hathaway and the Brazilian, Jorge Paulo Lemann, orchestrated the deal, at the headquarters of 3G Capital. What were the motivations and objectives of this merger? A few months after the deal, what measures have been introduced?
Marrying two American giants
Heinz and Kraft are two major brands in the American food and beverage industry. With over a hundred years of history each, the brands have conquered markets around the world thanks to products such as Heinz® Ketchup, Philadelphia Cream Cheese, Velveeta and Maxwell House.
By merging HJ Heinz Co. and Kraft Foods, the group has a portfolio of highly recognized brands (Heinz, Velveeta and Maxwell House each reported over 1 billion dollars of turnover in 2014). Yet, the group will still be only a middleweight player in the food and beverage industry. In 2014, Heinz's turnover was 10.9[1] billion dollars for a net profit of 0.7 billion dollars. Kraft had a turnover of 18.2[2] billion dollars and a net profit of 1 billion dollars.
Kraft Foods acquired HJ Heinz Co. to create The Kraft Heinz Company, a new giant in the American industry. The group should report more than 28[3] billion dollars in turnover, be valued at 97 billion dollars, and employ 46,000 people. The group is now the third largest North American food and beverage industry player and the fifth worldwide in terms of turnover (still far behind Nestlé, the number one Swiss giant with 91.6 billion dollars of turnover in 2014 - followed by PepsiCo, Unilever and Mondelez).
Why merge?
Although both companies have widely recognized brand name products, they have suffered from stagnating or even decreasing demand in the USA. As customers have become aware of the artificial, fattening or sugary characteristics of the groups' products, they have turned towards more natural and healthier products. In this context, why merge two slowing middleweight players?
Warren Buffet and 3G Capital are counting on Heinz's international distribution network to develop Kraft's international sales. While Heinz...