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Why Kraft Foods Group Inc Stock Skyrocketed Today

By Steve Symington – Mar 25, 2015 at 12:12PM

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Hint: Warren Buffett endorses the move.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Kraft Foods Group (KRFT.DL) was up 39% -- and no, that's not a typo -- Wednesday as of 11:15 a.m. after it announced a definitive merger agreement with H.J. Heinz Company.

So what: Appropriately dubbed The Kraft Heinz Company, the resulting business will boast annual revenue of roughly $28 billion, including eight $1 billion+ brands and five brands worth between $500 million and $1 billion. That'll also make The Kraft Heinz Company the third largest food and beverage company in North America, and the fifth largest in the world.

Now what: Kraft shareholders, in particular, will receive a special cash dividend of $16.50 per share upon the deal's closing -- or 27% of Kraft's closing price as of yesterday -- as well as stock in the combined business representing a 49% stake in the new company. Current Heinz shareholders will own the remaining 51% on a fully diluted basis. Namely, that's Berkshire Hathaway (BRK.B 0.40%) (BRK.A 0.35%) and 3G Capital, the two of which teamed up to acquire Heinz in a $28 billion deal in early 2013. As part of the new deal, Berkshire and 3G are fully funding the aggregate special dividend payment with a new $10 billion equity contribution.

In the end, I think Berkshire Hathaway CEO Warren Buffet summed it up well:

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.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway (A shares) Stock Quote
Berkshire Hathaway (A shares)
$478,675.55 (0.35%) $1,655.56
Berkshire Hathaway (B shares) Stock Quote
Berkshire Hathaway (B shares)
$317.43 (0.40%) $1.25
Kraft Foods Group, Inc. Stock Quote
Kraft Foods Group, Inc.
Kraft Heinz Intermediate Corporation II Stock Quote
Kraft Heinz Intermediate Corporation II

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