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Kraft and Heinz are merging to form a food superconglomerate

  1. Heinz and Kraft today announced plans to merge, forming the fifth-largest food company in the world.
  2. Before the merger, Heinz was jointly owned by Warren Buffett's Berkshire-Hathaway and a Brazilian private equity group called 3G.
  3. Former Kraft shareholders will own 49 percent of the new company, with Berkshire and 3G splitting the rest.
  4. Heinz's current CEO, Bernardo Hees — who is also a partner at 3G — will run the newly unified company.
  5. Kraft shareholders will also get a $10 billion special dividend, financed by Berkshire and 3G, to grease the wheels of the deal.

What brands will the new entity combine?

Kraft is probably best known for its mac and cheese and Heinz is definitely best known for its ketchup, but both companies are portfolios of brands. The companies released a handy infographic to summarize everything the new company controls:

This is probably bad news for Kraft employees

While Warren Buffett has traditionally taken a "buy and don't change much" approach to acquisitions, the hallmark of 3G's management of Heinz has been firing lots of workers. There were the August 2013 layoffs, the April 2014 buyouts, the November 2014 layoffs, etc.

One suspects part of the value Buffett bought to the table in the Heinz purchase is that his folksy persona helped obscure the extent to which foreign investors were taking over an iconic American brand to sack its employees. Finding redundant back-office staff to lay off is generally a priority in any merger, and putting the Heinz management team in charge is a good sign that there is ruthlessness to come.

Kraft will try to go global

The more optimistic take on the merger is that this combines Kraft's products with Heinz's platforms. The background here is that the current version of Kraft is the result of a corporate split, in which a giant food conglomerate became two companies. One of those companies, Mondolez, controls an international portfolio of snack brands. New Kraft, by contrast, is very focused on supermarket products targeting the US market — Velveeta, Jell-O, Oscar Mayer, etc.

Heinz has a narrow range of products, but it is very global. The new company says it wants to fuel "global expansion" by "combining Kraft's brands with Heinz's international platform." In other words, they think they can use Heinz's distribution network to place Kraft products in foreign supermarkets, where its various wares may have more growth potential than in the mature American market.