3G Capital in talks to buy Kraft Foods Group for over $40 bn

Brazilian private-equity firm 3G Capital Partners LP is in advanced talks to buy Kraft Foods Group Inc, in a deal that could be valued at over $40 billion, The Wall Street Journal yesterday reported, citing people familiar with the talks.

The PE firm will carry out the acquisition through H J Heinz Co, which it acquired 2013 in partnership with Warren Buffett's investment arm Berkshire Hathaway for $28 billion including debt.

Kraft has a market value of little over $36 billion and was last traded on the Nasdaq at $61.33. The deal value could be over $40 billion given typical premiums paid in takeover deals, the report said.

Considering the high price, the report is not clear about whether the proposed deal would be financially backed by Buffett.

Both 3G Capital and Berkshire Hathaway hold an equal 50 per cent stake in H J Heinz Co and Buffett had earlier said that he was open to working with 3G Capital on similar friendly deals.

In 2010, Berkshire was the biggest shareholder of Kraft Foods Inc. with a stake valued at over $3 billion, but started paring his stake after he opposed the company's decision to sell its pizza brands to raise money to fund the takeover of Cadbury Plc.

A little over two years after acquiring Cadbury in a hostile takeover, Kraft split into two independent public companies focusing on snacks business called Mondelez International and a North American grocery business that retained the name Kraft Foods. (See: Kraft Foods to split into two companies)

Kraft Foods' grocery business consists of many of the most popular food brands that include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip salad dressing.

Kraft Foods has seen net income shrink from $2.7 billion in 2013 on sales of $18.2 billion to net income $1 billion last year while sales remained flat at $18.2 billion.

3G Capital, co-founded by Brazilian billionaire Jorge Paulo Lemann, is well known for two reasons – for buying well known brands in the US food industry, and for maximizing profit through a process called ''zero-cost budgeting,'' where every division of a company must justify its costs every financial year.

In 2010, 3G Capital acquired Burger King and formed Restaurant Brands International in 2014, after  merging it with Canada's coffee-and-doughnut retailer Tim Hortons, which 3G had acquired in August 2014, with a $3-billion investment from Berkshire Hathway (See: Warren Buffett to invest $3 bn in Burger King's acquisition of Tim Hortons).