Heinz, Kraft to merge, create food-beverage giant

CHICAGO (WLS) -- Heinz and Kraft are merging in a deal that would create the third-largest food and beverage company in North America and the fifth-largest in the world.

The H.J. Heinz company said it has signed an agreement to merge with Northfield-based Kraft Food Group Inc. in the second half of this year.

The combined Kraft-Heinz Company would be headquartered in both Northfield and Pittsburgh, where Heinz is currently based. But Peter Frost, a writer for Crain's Chicago Business, said that won't last forever.

"The companies say that by bringing these two brands together, they'll be able to save $1.5 billion in the near term in costs, which generally means that there will be some reduction in head count," Frost said.

Kraft currently employs 2,200 people at its headquarters in Northfield.

Heinz had its own takeover in 2013 when Brazilian private equity firm 3G Capital teamed up with Warren Buffett's Berkshire Hathaway to privatize the once-public food manufacturer.

Under the latest deal, Kraft shareholders will receive stock in the combined company and a cash dividend of about $16.50 per share.

Kraft's shareholders still need to approve the deal. If the merger closes, they will hold a minority stake in the new company.

The new company said it is committed to preserving the heritage of both Kraft and Heinz in their respective hometowns. That means Kraft would continue to support Chicago-area charities and organizations.

The proposed deal is expected to be worth upwards of $40 billion.

Officials from both Heinz and Kraft discussed the details of the planned merger during a conference call with investors Wednesday morning.

"Our brands require no introduction. The average household has over 10 at any given time. This transaction will allow us to reach our goals much faster than on our own," Kraft Chairman and CEO John Cahill said.

The Kraft Heinz Co. will own Kraft, Heinz, Oscar Mayer, Ore-Ida and other brands. Eight of those brands have annual sales of $1 billion or more and five others log sales between $500 million and $1 billon every year.

Shares of Kraft jumped 26 percent Wednesday before the opening bell. Both companies are more than a century old.

Current Heinz shareholders will own 51 percent of the combined company, with Kraft shareholders owning a 49 percent stake.

Annual cost savings estimated to be $1.5 billion are expected to be booked by the end of 2017.

"This is my kind of transaction," said Buffett in a printed statement. "Uniting two world-class organizations and delivering shareholder value. I'm excited by the opportunities for what this new combined organization will achieve."

Heinz CEO Bernardo Hees will become CEO, Alex Behring, Heinz chairman and managing partner at 3G Capital, will be chairman. Kraft CEO and Chairman John Cahill will become vice chairman.

The deal still needs a nod from federal regulators as well.

Kraft Heinz plans to keep Kraft's current dividend per share once the transaction closes. Kraft has no plans to change its dividend before the deal is complete.

The Associated Press contributed to this report.