H.J. Heinz Buying Kraft In Deal To Create Food Giant
NEW YORK (KDKA/AP) - Call it a merger of ketchup and macaroni and cheese, two staples in the American kitchen.
And while the two companies don't really compete with the same products, the merger has raised concerns about local jobs and the future of the Heinz name.
Pittsburgh-based Heinz and Chicago-based Kraft Foods will merge to create a new company called Kraft-Heinz, although don't expect changes in anything named Heinz in Pittsburgh, including Heinz Field.
That all stays the same.
In fact, Heinz officials went out of their way to stress the upside of this deal for Pittsburgh.
"Very exciting for Pittsburgh, for our employees, and the community," said Bernardo Hees, the Brazilian executive who is the CEO of Heinz and will become the CEO of Kraft-Heinz.
Hees, speaking in a conference call with the media on Wednesday morning, tried to dispel concerns that this merger would hurt this region.
"We're making the company stronger in the combined entity. We're planning to keep our roots in the Heinz business and headquarters in Pittsburgh," said Hees.
The $40 billion merger is the brainchild of multi-billionaire Warren Buffett and 3G Capital, the Brazilian private equity firm that owns 48 percent of Heinz.
Buffett's Berkshire Hathaway owns 52 percent, but he lets 3G Capital, known for slashing jobs and costs, run the operations.
Kraft-Heinz will become a public corporation with Buffett and 3G Capital owning a majority of the shares.
Kraft will continue to be run from Chicago and Heinz from Pittsburgh.
"We see this as a growth story for Pittsburgh," added Michael Mullen, Heinz's senior vice president. "We see this as a very good day for Pittsburgh. We think this is business as usual for Pittsburgh and a very good news story for the community."
They call it a merger, but in actuality, Buffett and 3G that own Heinz are buying Kraft Foods and creating a new company called Kraft Heinz.
"Clearly, this is going to be a Warren Buffett/3G Capital board," said local investment analyst Henry Beukema.
Beukema, with Guyasuta Investment Advisors, says it's clear who's calling the shots, and Buffett and 3G will do to Kraft what they did to Heinz.
"The 3G team and Mr. Buffett have done a very good job of coming into Heinz and, while not always positive for the community and corporate management, they did succeed in taking a billion dollars of expense-saves out of Heinz," says Beukema.
Kraft-Heinz will have two headquarters, one in Pittsburgh and one in Chicago, and what is now a private company, Heinz, will become a publicly-traded company, Kraft-Heinz, with Buffett and 3G the majority shareholders.
So could there be more job losses at Heinz in Pittsburgh?
"The bulk of the cuts will likely not be felt here in Pittsburgh," predicts Beukema.
In fact, local elected officials echo Heinz officials in stressing Pittsburgh could grow.
"I am very pleased that the announced merger between Heinz and Kraft expressly includes a continued commitment to Pittsburgh, both in terms of job creation with the retention of the headquarters of the Heinz division in our city, as well as their continued civic commitment to our neighborhoods. Heinz has been part of the fabric of our city for over a century, and we look forward to building upon that legacy for decades to come," Mayor Bill Peduto said in a statement.
"The fact is that Pittsburgh is such a competitive place to do business," said Allegheny County executive Rich Fitzgerald. "We have a good tax structure. We have talent. There's a pipeline of folks who can work here. And you can afford to hire people here at less cost than at places like Chicago and New York."
That could happen.
Hees, the Heinz CEO, will become the CEO of Kraft-Heinz, and, so far, he and his family will stay here in Pittsburgh.
Interestingly, while Kraft is well-known in the United States, it is Heinz that has the international reputation.
Kraft shareholders still need to approve this deal, along with government regulators.
The combination of H.J. Heinz Co. and Kraft Foods Group Inc. will bring many of America's oldest and best-known brands under the same corporate roof.
Here's a look at the history behind some of those products:
HEINZ TOMATO KETCHUP
The company's name is synonymous with the ketchup it has been selling since 1876 that actually transformed the concept of ketchup. People now take for granted the fact that ketchup is commonly made from tomatoes, but that wasn't always the case. The seemingly redundant "Tomato Ketchup" label is a holdover from when it was more common to find ketchup with ingredients other than tomatoes (some early recipes were based on mushrooms or even seafood), and Heinz needed to point out the difference.
JELL-O
The base ingredient of this well-known product has been part of dessert dishes as far back as the late Middle Ages, but it was a cough syrup maker in 1897 who made it into what we know today. Pearle Bixby Wait started mixing powdered gelatin with fruit flavors and sugar. The result was sold to the Genesee Pure Food Company in 1899, and within a few years, advertisements in The Ladies Home Journal and the distribution of Jell-O cookbooks as a marketing tactic set the product on its way. The gelatinous dessert has an entire museum devoted to it in Leroy, New York, where it was created.
PHILADELPHIA CREAM CHEESE
The famous cracker and bagel spread was created in 1872 - not in its namesake city, but about 140 miles north, in Chester, New York. The "Philadelphia" part of the name was a marketing move around 1880 to tie the product with the city known at the time for quality cream cheese.
KOOL-AID
The powdered fruit drink was born of an experiment by Edwin Perkins in 1927, when he was looking for ways to reduce shipping costs for a liquid concentrate fruit drink. The mascot for the brand, a liquid-filled, smiley faced pitcher with arms and legs, started to give the product legs of its own in the 1950s. His catchphrase of "Oh Yeah!" is now embedded in American pop culture.
OSCAR MAYER
The story of Oscar Mayer starts in 1883 in Chicago, at the time the nation's epicenter of meat packaging and processing, with Oscar F. Mayer's butcher shop. The company stepped into hot dog marketing history in 1936 with the launch of the Wienermobile, a car shaped like a hot dog.
CHEEZ WHIZ
The all-purpose cheese sauce - and staple topping of the classic Philly cheesesteak - was inspired by a simple dish of melted cheese over toast. The product hit the market in 1952, with its first campaign slogan eventually being "Spoon it. Spread it. Heat it." The first part of that slogan eventually became unnecessary, when in 1993, Kraft introduced the squeezable bottle.
CLAUSSEN PICKLES
The Chicago staple was born in 1870 when farmer Claus Claussen Sr. turned a bumper crop of cucumbers into pickles. In the 1960s, the founder's great-grandson Ed Claussen helped create its touted crunchy version, known for being sold in the refrigerated section of grocery stores.
LEA & PERRINS
The famous Worcestershire sauce was born of a mistake, so the story goes. The two chemists whose names adorn the bottle consigned the finished product to a cellar after having tasted and rejected it as unpleasant. The key ingredient, though, turned out to be time. Years later, they rediscovered the jars and tasted the sauce again. It first sold commercially in England in 1837 and became part of Heinz in 2005.
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