Case Analysis Of The Kraft Heinz Company

Kraft Heinz Co. formally became a merger in July 2015, so analysis will be conducted in a 52 - 68 week basis. The most recent recorded net income for Kraft Heinz Co. was for the third quarter (July, August, September) of 2016, totalling up to $842 million USD, a huge jump from the net loss of $123 million earned the first quarter after the corporation’s merger and a net profit of $285 million during the second quarter. Since the end of 2015, KHC’s net income has

The billion dollar offer would enable Mondelez’ plan to expand in the United States and become the world’s largest confectioner. However, Hershey snubbed their offer. Hershey is allegedly reported to have mishandled a $12 billion charitable contribution over a centry ago by the company’s founder.

The reason for the increase in the stock price in Berkshire Hathaway was dependant on several factors. With the GEICO stock rising with $12.875 to $68.625 on the New York Stock Exchange, Geico Hathaway gained approximately $440 million on their 34.25 million shares in GEICO. With the gain from the upcoming deal with Walt Disney Company, as well as the publication of the Value Line Forecast for GEICO, it is understandable that the Berkshire Hathaway stock rose. Another factor that also comes into play in this case is the famous track record of Warren Buffett when it comes to investing.

In 1998 the Thomas H. Lee (THL) company became the majority owner of United with 84.3 percent stake in the business at a cost of US$660 million dollars11.

Kraft Heinz Incorporation was established on July 2015 as a consequence of the merge between Kraft Foods and Heinz (Kraft Heinz Canada, 2016). Henry Heinz in 1869 started to produce his first product know as bottled horseradish whereas J. L. Kraft & Bros in 1909 started to produce the wholesale cheese. In 1915, J. L. Kraft & Bros began to sell processed cheese in tins. Moreover, Mondelez on October 2012 was separated from Kraft. However, Mondelez took the global snack business and Kraft kept the North America grocery market. After that, 3G Investment together with Berkshire Hathaway, on July 2013, acquired H. J. Heinz (Kraft Heinz Canada, 2016).

The two companies’ management team anticipate $1.5 billion in annual cost savings by 2018 due to the deal. Furthermore, most of the cost synergies will come from North American market’s higher economies of scale, while others will come from the company’s ability to refinance Heinz’s high yielding debt. The larger the number of sales

Although this merger look like a “win” “win” situation for both Kraft’s and Heinz, I believe that Heinz is a dominant party in this merger. In the surface it look like Kraft got more out of this deal. 1- the new company name is using “Kraft” first follow by “Heinz” coequal to “ KraftHeinz”. Kraft’s shareholders received a one-time cash divident of $16.50 per share. Why was the deal called “coequal”?, there was a need to sweeten the deal by offering kraft’s shareholders this incentive?

Another reason was the more perceptible shift in consumer preferences away from processed foods and towards more organic style of living. The idea behind this merger is to bring together two iconic brands, improve their operating efficiencies and expand internationally.

Kraft shares were down 22 cents, or 0.5 percent, at $44.48 in late morning trade. The broader market, as measured by the S&P 500 index, was down more than 2 percent, a day. Kraft said net income rose to $470 million, or 79 cents per share, from $417 million, or 70 cents per share, a year earlier. Revenue increased 3 percent to $4.61 billion. Most of the increase came from volume gains and selling a more expensive mix of products, with a smaller contribution from price increases. (Martinne Geller). (February 10, 2009).

In the last 4 years Kraft Foods are on a positive trend with most of $49,207 billion of sales in the last year, 2010. The effects of the crisis can be also seen as 2009 is the only position when the trend was disrupted. In spite of this they their net profit continues to skyrocket (Appendix 1).

In December 2000, management at General Mills (GM) proposed a plan to acquire Pillsbury, a baked- goods producer, in a stock-for-stock exchange. Pillsbury is currently controlled by Diageo PLC, one of the world’s leading consumer–goods companies. The deal specifies that General Mills is to create and thus issue additional shares of common stock to Diageo in exchange for complete ownership of the Pillsbury subsidiary. If the deal is executed,   Diageo   will   become   General   Mills’   largest   shareholder. The consideration to Diageo

In the case of accepting the terms of the transaction, Kraft intends to issue 265 million new shares, or 18% of the existing ones. Stockbroker Andrew Wood believes that Kraft has every reason to pursue the acquisition of Cadbury, as this would allow the American company to expand its confectionery business to more effectively compete with Mars. On the other hand, the head of an investment holding company Berkshire Hathaway Warren Buffett, the largest shareholder of Kraft Foods, marked that he felt poor because of this purchase (Chu 2010). He considers the sum of $19.3 billion too high, and the whole deal unsuccessful.

The threat of off brand or store brand condiments is very significant to Heinz. The rising popularity of salsa and similar international condiments is also something of which Heinz must be aware. The new trend of dieting and losing weight could also be a threat to the Heinz company. As people tend to eat healthier they may consume less Bagel Bites, and Boston Market gravy. The strength of the American dollar and economy is a serious threat to realized profits for Heinz. Heinz is very susceptible to international food regulations as well. They should have a plan of action if something similar to Mad-Cow occurs, affecting one or some of the ingredients of their products.

Heinz focuses on marketing their products with a focus on wellness, health and sustainability of their ingredients. While manufacturing high standard

Parmalat SpA is a multinational Italian dairy and food corporation that specializes in UHT (Ultra High Temperature) production of long life milk. It was founded by Calisto Tanzi in 1961 and the headquarter is based in Collecchio, Italy. In 2003 the company collapsed with a €14 billion hole in its accounts and it is still considered the Europe’s biggest bankruptcy.