3G Capital in talks to acquire Kraft and merge it with Heinz

3G Capital, the Brazilian private-equity firm, is understood to be in advanced talks to acquire Kraft Foods Group Inc. and merge it with ketchup maker H.J. Heinz.

A deal could be announced as soon as this week. Kraft, based in Northfield, Illinois, closed at $61.33 in New York trading Tuesday, giving the company a market value of about $36 billion.

The stock surged 17 per cent after US markets closed and was trading at the equivalent of $71 in Frankfurt Wednesday.

Warren Buffett's Berkshire Hathaway Inc. teamed up with 3G Capital two years ago to acquire Heinz and then helped finance 3G-owned Burger King Worldwide Inc.'s purchase of Canadian coffee-and-doughnut chain Tim Hortons Inc.

Since those deals, speculation has simmered about what they'll buy next -- be it cereal maker Kellogg Co., Kraft or Mondelez International Inc. Buffett stoked the conversation with his annual letter to Berkshire shareholders, saying he expects to "partner with 3G in more activities."

The current Kraft was created in a spinoff from Mondelez in October 2012. Mondelez inherited the company’s overseas snack businesses, giving it bigger growth opportunities internationally.

Kraft, meanwhile, is focused on the US with a collection of household brands including its namesake macaroni- and-cheese dinners, Planters nuts and Philadelphia Cream Cheese. The company is struggling to reignite revenue growth in a mature market, with sales volume declining 0.3 per cent last year.

Consumer brands

Berkshire has been a longtime investor in Kraft, tracing back to a stake in its predecessor company, as Buffett acquired and held stakes in dominant consumer brands including Coca-Cola. The billionaire began paring his stake in Kraft Foods Inc. in 2010 after disagreeing with the company's decision to sell its pizza brands to help pay for a takeover of Cadbury Plc. Buffett criticised then-Kraft CEO Irene Rosenfeld for the Cadbury transaction and the sale of the pizza businesses.

“Both deals were dumb,” he told Berkshire investors at the time. Berkshire was the biggest shareholder of Kraft with a stake valued at $3.3 billion at the end of December 2010. Buffett looks for targets that have strong brands, simple businesses and consistent earnings power.

3G, co-founded by Brazilian billionaire Jorge Paulo Lemann, is known for its ability to improve operations and cut costs. Representatives for Kraft and Heinz didn't immediately respond to requests for comment made outside regular business hours. Buffett didn't immediately respond to a request for comment sent to an assistant. Tony Vernon stepped down as chief executive officer of Kraft in December and was succeeded by Chairman John Cahill.

The Wall Street Journal reported yesterday that 3G is in talks to buy Kraft. The private-equity firm disclosed in a November regulatory filing that it is raising a fourth special situations fund, without identifying the fund’s size. A person with knowledge of the matter said earlier this year it will be about $5 billion.

Bloomberg