Megafood puts Megabrew on hold
Is Megabrew, the potential tie-up between AB-InBev and SABMiller, permanently off or just temporarily? Crystal ball gazers wondered after it was announced on 25 March 2015 that the Brazilian owners of 3G (who also have a 20 percent in AB-InBev) are buying a majority stake in Kraft Foods, together with investor Warren Buffet.
In a second step they will merge Heinz, which they acquired in 2013, with Kraft to create the third-largest North American food company – aka Megafood.
The deal still needs regulatory approval but observers agree that this should not be a problem.
Heinz shareholders will own 51 percent of the combined company and Kraft shareholders the rest. By combining Kraft Ketchup and Kraft Macaroni Cheese, the new entity will save about USD 1.5 billion in annual costs by the end of 2017 and will have eight brands worth over USD 1 billion each, the companies said.
Kraft Heinz, as the company will be called, is to be led by Heinz CEO Bernardo Hees and will have revenues of about USD 28 billion, or roughly half of PepsiCo’s in 2014.
The private equity firm 3G Capital also controls Restaurant Brands International, formed when its Burger King business bought the Canadian coffee and doughnut chain Tim Hortons last year.
UK media commented that the biggest loser in the Kraft Heinz Group merger is SABMiller, whose share price slid more than 1.1 percent on the day. There had been speculation that 3G was considering a bid for the brewer and combining the firm with AB-InBev.
However, given the size of the Kraft-Heinz deal, many observers thought it unlikely that 3G would be willing and able to execute simultaneously two substantial deals, from both financial and strategic perspectives.
Last June, when takeover speculation was almost feverish, analysts agreed that AB-InBev would be able to extract USD 1 billion in annual cost savings from SABMiller.
In the acquisition of Kraft, however, 3G and Berkshire Hathaway have said they expect to achieve USD 1.5 billion in cost savings, implying that they expect to extract more value from this deal than from an AB-InBev-SABMiller combination.
Nevertheless, the jury is still out if the Kraft-Heinz deal merely postponed an AB-InBev+SABMiller transaction or in fact called it off.
