By Steve Gelsi
Shareholders of the Berkshire Hathaway-backed food giant will get shares in two publicly traded food companies to be named at a later date
Kraft Heinz is breaking itself up 10 years after the two companies merged with backing from Warren Buffett.
Ten years after Warren Buffett backed the merger of Kraft Foods and Heinz, the combined company is breaking up, as Kraft Heinz Co. on Tuesday confirmed what Wall Street has expected for months.
Kraft Heinz will split into two separate publicly traded companies, which was where they were in 2015 when Buffett teamed up with Brazilian private-equity giant 3G to scale up businesses known for their macaroni and cheese and ketchup.
At the time, 3G had won fans on Wall Street for its so-called zero-based budgeting approach to managing larger companies while keeping costs down.
In his latest comment on the tie-up, which has been going sour for years, Buffett on Tuesday told CNBC-TV that he’s disappointed with the plan to break up the company.
Kraft Heinz’s stock fell 6.4% in morning trading as one of the worst performers in the S&P 500 SPX.
Jefferies issued cautious comments on the deal after it was announced. “The move aims to unlock growth and efficiency by reducing complexity, but questions remain on the ability of the split to reignite momentum,” Jefferies analyst Scott Marks said in a research note.
Buffett said in 2019 that he had overpaid for Kraft Heinz. He continues to own a more than 27% stake in the company but no longer has representation on its board.
Investors should be happy with the breakup. Through Friday, the stock (KHC) has tumbled 54.4% since the day before the original merger was announced, while the S&P 500 index SPX has soared 208.9% over that same time span.
Under the deal announced Tuesday, shareholders of Kraft Heinz will get shares of two yet-to-be-named equities in a tax-free spinoff that is expected to close by the end of 2026.
The current dividend level will be maintained in aggregate, the company said.
For now, Kraft Heinz is calling one company “North American Grocery Co.,” which is to be headed up by Carlos Abrams-Rivera, who is currently chief executive of Kraft Heinz. That business, with annual sales of about $10.4 billion, will include Oscar Mayer meats, Lunchables and Kraft Singles.
The second company, referred to as “Global Taste Elevation Co.,” with sales of $15.4 billion, will be led by a yet-to-be named chief executive. That business will include Heinz ketchup, Kraft Macaroni & Cheese and Philadelphia cream cheese.
Stock ticker symbols, like the company names, have yet to be formalized.
While the two companies sold their 2015 combination as a way to grow through scale, the breakup is seen as a way to free up each business to thrive.
“We strongly believe that increased focus will translate into better performance and value creation for shareholders,” Jack Pope, lead director of the Kraft Heinz board, said in a statement.
Speculation about a breakup increased in May, when Kraft Heinz announced it was considering strategic alternatives to unlock shareholder value.
At that time, Kraft Heinz said that it would reduce the size of its board by two members and that the action would result in the departure of two Berkshire Hathaway (BRK.A) (BRK.B) executives, Alicia Knapp and Timothy Kenesey.
Then, the Wall Street Journal reported late last week that the deal was nearing a public announcement.
At last check, Kraft Heinz had a market capitalization of $33 billion.
In Berkshire Hathaway’s latest disclosure, the company said it owned 325.6 million Kraft Heinz shares, or 27.5% of the shares outstanding as of July 26. The value of Berkshire’s stake was $9.11 billion as of Friday’s closing price.
In its second-quarter update on Aug. 2, Berkshire Hathaway took a $5 billion pretax impairment loss as a component of its equity in the earningsof Kraft Heinz.
Kraft Heinz said the separation could generate additional costs of up to $300 million, “with clear opportunities to mitigate a substantial portion of these in the near term.”
Jefferies analyst Marks said the decision by Kraft Heinz to opt for a separation “appears to be the alternative to selling brands at dilutive multiples” such as Conagra Brands Inc.’s (CAG) deal to sell Chef Boyardee for $600 million to private-equity firm Brynwood Partners, as announced in May.
As of Friday’s close, Kraft Heinz’s stock price has fallen 8.9% this year, while the S&P 500 has gained 9.8%.
While Buffett provided capital for the combination of Kraft and Heinz, it was also seen as an endorsement of 3G’s zero-based budgeting approach.
That approach, however, came under scrutiny as early as 2015 for potentially compromising quality.
“Where, oh where, is the emphasis on the all-important consumer and brand value?” the authors of a 2015 Harvard Business School article asked. “The singular focus of 3G has been on cost cutting.”
Even with its declining value, Kraft Heinz ranks as the second-largest holding for Berkshire Hathaway, with a value of $8.4 billion on June 30, while Berkshire’s stake in Occidental Petroleum Corp. (OXY) stood at $16.5 billion as of June 30.
The breakup comes at a time of seismic changes in the packaged-food business, as privately held Mars Inc. moves to complete its $36 billion acquisition of Kellanova (K) and as Ferrero International purchases WK Kellogg Co. (KLG). Both deals are expected to close later this year.
In another large breakup deal in the food space, Keurig Dr Pepper Inc. (KDP) is paying $18 billion to acquire Dutch-based JDE Peet’s NV (JDEPY) and then split into two companies, one specializing in the North American refreshment-beverages market, and the other a pure-play coffee company.
Kraft Heinz is jointly headquartered in Chicago and Pittsburgh.
Also read: Kraft Heinz is reportedly weighing a breakup. Some analysts have already said it should ‘slim down.’
-Steve Gelsi
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09-02-25 1219ET
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