In a deal that will create the world’s fifth-largest food and beverage company, H.J. Heinz Co. and Kraft Food Group, the parent company of Madison’s Oscar Mayer, have announced they will merge into an entity called Kraft Heinz Co.
The merger, reportedly in excess of $40 billion, was financed with the help of 3G Capital Partners, the Brazilian company that owns Heinz, and Warren Buffett’s Berkshire Hathaway Inc.
The companies own famous brands like Oscar Mayer meats, Jell-O, and Planters nuts and have combined annual revenues of $28 billion, but Kraft and other U.S. food companies have reported disappointing sales due to changing customer tastes, including greater demand for healthier, fresher foods, and higher commodity costs have further eroded their profits.
Consumer concern over the nutritional value of packaged, processed foods has prompted Kraft to offer healthier, high-protein snack options and take artificial coloring out of its cheeses, but 2014 sales remained flat at $18 billion, and annual profits plummeted 62% to $1 billion. That included a dismal fourth quarter in which Kraft reported a $398 million loss on revenues of $4.7 billion.
The immediate workforce impacts for Oscar Mayer are unknown, but 3G has a reputation of acquiring consumer companies it considers bloated and then slashing costs, according to a report in the Wall Street Journal. The companies said Wednesday that annual cost savings from the merger could reach $1.5 billion by the end of 2017.
