Heinz, Kraft merge to form world's fifth largest food giant

Ketchup maker H.J. Heinz Company and Kraft Foods Group agreed on Wednesday to merge in a deal that would create the fifth largest food and beverage company in the world, with about 28 billion U.S. dollars in annual revenue.

The deal between the two icons of the American food industry joins together two portfolios of beloved brands -- Kraft owns popular brands such as Jell-O, Maxwell House coffee and Planters peanuts, while Heinz is famous for its signature ketchup, and also owns Lea & Perrins and Ore-Ida.

The combined company will be named The Kraft Heinz Company. The new company's shares would trade publicly, according to a statement.

The new company will have revenues of approximately 28 billion dollars with eight individual brands each reporting sales of at least 1 billion dollars a year and five brands with between 500 million to 1 billion dollars in sales. It is aiming to generate 1. 5 billion dollars in annual cost savings by the end of 2017.

Under the terms of the agreement, Kraft shareholders will own a 49-percent stake in the combined company, and current Heinz shareholders will own 51 percent on a fully diluted basis.

Kraft shareholders will receive stock in the combined company and a special cash dividend of 16.50 dollars per share. The aggregate special dividend payment of approximately 10 billion dollars is funded by Berkshire Hathaway and 3G Capital.

Warren Buffett, Chairman and CEO of Berkshire Hathaway, 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. I'm excited by the opportunities for what this new combined organization will achieve."

"Together we will have some of the most respected, recognized and storied brands in the global food industry, and together we will create an even brighter future," said Kraft Chairman and Chief Executive Officer, John Cahill.

Heinz Chief Executive Officer, Bernardo Hees, said "We are thrilled about the unique opportunities this merger will create for our consumers worldwide, as well as our employees and business partners. Together, Heinz and Kraft will be able to achieve rapid expansion while delivering the quality, brands and products that our consumers."

Kraft shares soared as much as 40 percent to around 86 dollars per share at noon, which lifted Kraft's market value to about 50 billion dollars. Endite