Please ensure Javascript is enabled for purposes of website accessibility

Why Kraft Foods Group Inc Stock Skyrocketed Today

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

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

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.