The investors behind the Kraft-Heinz merger

Stan Alcorn Mar 25, 2015
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The investors behind the Kraft-Heinz merger

Stan Alcorn Mar 25, 2015
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Kraft and Heinz announced Wednesday they would merge to form the fifth-largest food and beverage company in North America. But the future of the Kraft Heinz Company depends on the pair of investors, Warren Buffett’s Berkshire Hathaway and Brazilian private-equity firm 3G, who made the deal happen. 

In general, there’s a fairly simple formula for when mergers are a good idea.

“Whenever you’re going to be able to create more value than the companies could do on their own,” says Donna Hitscherich, director of the private-equity program at the Columbia Business School. “I mean, that’s the essence of it. But the devil is always in the details.” 

In this case, the details are about cutting costs, as Berkshire Hathaway and 3G have done at Heinz, which they purchased in 2013. In order to reach their declared cost reduction target for Kraft of $1.5 billion by 2017, Anil Shivdasani, professor of finance at the Kenan-Flagler Business School at UNC-Chapel Hill, says there’s “no question” this will mean lay-offs.

But Erin Lash, senior analyst at Morningstar, says it won’t all be about firing people and spinning off brands.

“You know they’re potentially more important to some of their suppliers, so they might be able to negotiate better terms,” Lash says.

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