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Kraft, Heinz seek to expand brands

News, 26 March 2015
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CHICAGO/PITTSBURGH: After a day of speculation in the financial media, food and beverage giants Kraft Foods and Heinz have confirmed that they will merge to create one of the world's largest consumer groups.

The deal will unite some of America's best known brands, ranging from Heinz tomato ketchup to Kraft Philadelphia spread, and offers opportunities for The Kraft Heinz Company to grow outside the US.

Kraft CEO John Cahill confirmed plans to "bring Kraft's iconic brands to international markets" in a move that Marketing Magazine forecast would result in more spend on marketing and innovation.

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"By bringing together these two iconic companies through this transaction, we are creating a strong platform for both US and international growth," explained Alex Behring, chairman of Heinz and managing partner at 3G Capital, the Brazilian investment firm which engineered the deal with Berkshire Hathaway.

"Our combined brands and businesses mean increased scale and relevance both in the US and internationally," he added, in comments reported by Advertising Age.

Warren Buffett, owner of Berkshire Hathaway, said: "This is my kind of transaction, uniting two world-class organisations and delivering shareholder value."

The new company will become the fifth-largest food and drinks group in the world and the third-biggest in North America with about $28bn in annual revenues.

At least eight brands each generate more than $1bn a year in sales while another five are worth between $500m and $1bn.

However, not all observers are convinced that the mega-merger will solve underlying issues, such as changes in consumer tastes.

Neil Saunders, managing director of retail analyst Conlumino, said the merger "is not a magic wand that can wave away the underlying problems of either company.

"Heinz, and especially Kraft, both need to invest in brands, in marketing and, most critically, in product innovation if they are to remain relevant to consumers around the world. Unlike cost savings, this is not something that a merger automatically delivers."

Subject to approval by regulators and shareholders, Heinz shareholders will take a 51% stake in the combined group with the other 49% going to Kraft shareholders.

Data sourced from Marketing Magazine, Advertising Age, Chicago Tribune; additional content Warc staff

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