Heinz, Kraft to Merge With Help from 3G

Deal Will Create Third-Largest Food Company in North America

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Ketchup and macaroni and cheese will come together under a merger announced today between Kraft Foods Group and H.J. Heinz that will create the third-largest food and beverage company in North America and fifth-largest in the world.

The deal to create The Kraft Heinz Company was orchestrated by 3G Capital and Warren Buffett's Berkshire Hathaway. The move comes after 3G -- which is notorious for aggressive cost-cutting -- acquired Heinz a couple of years ago with financing help from Berkshire. The new company will be based in Pittsburgh and Chicago and have revenues of about $28 billion and with eight one-billion-dollar brands.

Bernardo Hees, CEO of Heinz, will become CEO of The Kraft Heinz Company.

Heinz's brands include its namesake ketchup and Ore-Ida, while Kraft's brands include Oscar Mayer, Philadelphia, Jell-O, Kool-Aid, Lunchables, Maxwell House and Velveeta.

A statement announcing the merger noted that the deal brings "significant synergy potential" including "an estimated $1.5 billion in annual cost savings implemented by the end of 2017." The synergies "will come from the increased scale of the new organization, the sharing of best practices and cost reductions." Those savings will "result in increased investments in marketing and innovation," according to the statement. The combined company is expected to use "zero-based budgeting," in which dollars spent must be justified every year.

The new company will pursue global expansion, by combining Kraft's brands with Heinz's international platform, according to the statement.

"By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth. Our combined brands and businesses mean increased scale and relevance both in the U.S. and internationally," said Alex Behring, chairman of Heinz and the managing partner at 3G Capital.

Mr. Buffett said "I am delighted to play a part in bringing these two winning companies and their iconic brands together. This is my kind of transaction, uniting two world-class organizations and delivering shareholder value."

The merger comes after a management shake-up last month at Kraft Foods that included the departure of Chief Marketing Officer Deanie Elsner. That was orchestrated by new CEO John Cahill, who will become vice chairman of the new company.

Before she left, Ms. Elsner oversaw a shuffling of Kraft's ad agency roster that trimmed the company's creative roster to four shops: Leo Burnett, McGarryBowen, Taxi and CP&B.

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