Analysts say that the deal creating the world's fifth largest food company makes sense, and it could trigger more mergers in the sector. Fred Katayama reports.
Chalk up another iconic American brand for investor Warren Buffett: Kraft. His Berkshire Hathaway and private equity firm 3G Capital are buying Kraft Foods and merging it with their company, H.J. Heinz. That'll create the world's fifth largest food and beverage company with $28 billion in revenue. The Kraft Heinz company combines Heinz's Ketchup and Classico sauces with Kraft's Oscar Mayer meats and Mac & Cheese. The deal comes just as Kraft battles sluggish U.S. sales amid changing consumer tastes. Joe Rundle of ETX Capital says the deal makes sense. SOUNDBITE: JOE RUNDLE, HEAD OF TRADING, ETX CAPITAL (ENGLISH) SAYING: "It will increase 3G's ability to get into the consumer in the U.S. It brings two big companies, very well known companies together that should give buying power and marketing power a significant shot in the arm." (:15) Heinz shareholders get the upper hand with a 51 percent stake in the combined company, and Heinz's CEO, Bernardo Hees, will run it. Kraft shareholders will get one share of Kraft Heinz and a special $16.50 a share cash dividend that's a 27 percent premium to Tuesday's closing price. Buffett and 3G are forking over $10 billion to pay that premium. Kraft's beleaguered shares rocketed higher at the open. Investors also drove up shares of rivals ConAgra, General Mills and Mondelez. Credit Suisse analyst Robert Moskow says this deal could put packaged food companies into play, saying, "3G's access to capital through Berkshire and others gives it plenty of ammunition to make additional acquisitions in the future." Kraft's new owner, 3G, is fixated on slashing costs at the food companies it buys, such as Anheuser-Busch and Burger King. It sees $1.5 billion in annual savings over two years in Kraft Heinz.