H.J. Heinz secures $10 billion equity investment to fund combination with Kraft, plans debt refinancing

By Lisa Kerner

Charlotte, N.C., March 25 – H.J. Heinz Co. and Kraft Foods Group, Inc. announced a definitive agreement in which the companies will combine to form Kraft Heinz Co., the third-largest food and beverage company in North America.

Kraft shareholders will receive stock in the combined company and a special cash dividend of $16.50 per share, or a total of about $10 billion.

Heinz “will be funded by an equity injection of $10 billion made by current Heinz shareholders Berkshire Hathaway and 3G Capital,” said Alexandre Behring, Heinz chairman.

Behring, who is also the co-founder and managing partner of 3G Capital, made his comments on Wednesday during a conference call to discuss the transaction details.

Under the terms of the agreement, Kraft shareholders will own a 49% stake in the combined company, and current Heinz shareholders will own 51% on a fully diluted basis.

Both companies’ boards of directors have approved the transaction, which is slated to close in the second half of the year.

Debt refinancing

Behring said $9.5 billion of existing Heinz high-yield debt will be refinanced with investment-grade debt at closing. About $2.2 billion of second-lien notes will remain in place until they can be refinanced.

In addition, Heinz plans to refinance its $8 billion of preferred equity as soon as it is callable in June. It also will be replaced with investment-grade debt, resulting in annualized cash savings of between $450 million and $500 million.

Total debt of the combined company will be about $28 billion at closing, said Behring.

The Kraft Heinz Co. will focus on reducing leverage through EBITDA growth and a targeted debt paydown of $2 billion within two years.

Net leverage is targeted at below three times in the near term.

Share purchases will be suspended for two years following the transaction’s closing, Behring said.

Behring will lead the new company as chairman. Kraft Heinz will continue to have headquarter locations in Pittsburgh and Chicago.

Heinz is a Pittsburgh-based food processing company. Kraft is a Northfield, Ill.-based food company.

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