Category Archives: Kraft Heinz

$229 million Kraft Heinz Expansion Saves the Bacon in Missouri

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The city of Kirksville, Missouri, and the Kraft Heinz Company are nearing the completion of a $229 million financing agreement that will see the company adding as many as 69 jobs and will preserve the existing 463 full-time jobs.

Kraft Heinz had originally planned to lay-off 279 workers and close its bacon producing facility.

Under the terms of the agreement, the city of Kirksville will issue Chapter 100 bonds that allows cities or counties to purchase or construct certain types of projects with bond proceeds and to lease or sell the project to a company. These “industrial development” bonds may be issued either as a “revenue” bond or a general obligation bond.

Eligible projects include purchase, construction, extension and improvement of warehouses, distribution facilities, and industrial plants.

Property Tax Abatement

Under Missouri law, upon the approval of the city/county issuer, it may be possible to exempt/abate most of the real and/or personal property tax of new real estate improvements and new machinery financed by a Chapter 100 bond. To enact this procedure, the city/county must own the assets financed by the bonds and an eligible company would lease the assets from the city/county for the term of the bonds. The amount and term of abatement/exemption depends on a negotiation with the city/county issuer, as they have the discretion to abate any portion of the property taxes.

The property tax is exempt by virtue of public ownership, however, the city/county may require that a portion of the payments otherwise due will be paid in the form of a payment in lieu of tax.

In this case, the city of Kirksville will own the property, eliminating property taxes for Kraft Heinz over a 10-year period.

Kraft Heinz will pay PILOTs (payments in lieu of taxes) to the local taxing districts. The amount will be 50-percent of the revenues that will be generated from the expansion project.

The tax abatement period will begin in 2017 and end in 2026.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

New York State Commits Tens of Millions to Keep Kraft Heinz Plants

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Twenty million dollars is a lot of cheddar, as the old saying goes, but it’s also a lot of cottage cheese and sour cream too.

Kraft Heinz has been busy closing plants and laying off employees, as a part of its rigorous cost cutting, but in upstate New York it is promising to keep plants open and is about to add hundreds of employees.

Under an agreement spearheaded by U.S. Senator Charles Schumer and Governor Andrew Cuomo, $20 million in state funds have been committed to keep open Kraft Heinz’s plants in Walton, Avon and Lowville.

Kraft-Heinz was initially planning to close the Avon facility and layoff all 405 employees, and the agreement also reversed the planned closure of the Walton facility.

Saving jobs, Adding Jobs

An agreement was reached between New York State and Kraft-Heinz to save three of their facilities in Upstate New York, including the Walton facility in Delaware County that was initially slated for closure, as well as add additional jobs in Lowville.

Senator Schumer said this agreement will preserve a significant employment base throughout Upstate New York for years to come.

In addition, the agreement paved the way for a matching capital investment from both Kraft-Heinz and New York State that will allow for future investment in the company’s technology, facilities and operations.

The Kraft-Heinz Walton facility, which produces cottage cheese and sour cream, employs a total of 141 people in Delaware County. Kraft-Heinz was planning to close the Walton facility and layoff all 141 employees. The agreement reached between Kraft-Heinz, Senator Schumer and Governor Cuomo will save the Walton plant and all 141 jobs for at least the next 5 years, ensuring that there are no layoffs or reductions at the facility.

Additionally, in an effort to help save the 393 jobs at the Campbell facility in Steuben County, Schumer and Cuomo secured a commitment from Kraft-Heinz to delay the closure and continue to operate the facility for at least the next 12 to 24 months, and to work with state, federal and local officials to help find a strategic buyer for the facility that would keep the plant open and retain the 393 jobs.

The company has also agreed to offer any employees leaving the Campbell facility first choice for the new positions at the Avon and Lowville plants.

Lastly, the Lowville Kraft-Heinz facility in Lewis County will retain all of its existing 340 employees and will add scores of additional jobs at the Lowell facility over the next five years.

A $50 million Investment

In return for the state funds, Kraft Heinz will invest $20 million over that same amount of time as a part of this deal. If after those five years, Kraft-Heinz has not decreased their aggregate employment in New York State, and has invested at least $25 million in its Upstate operations, New York State will then invest an additional $5 million, bringing the combined matching total investment to at least $50 million in Upstate New York.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Kraft Heinz Axes 7 Factories and Moves Oscar Mayer Headquarters

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As part of its ongoing belt-tightening aimed at wringing out $1.5 billion in annual savings, Kraft Heinz has announced that it will close seven factories in the U.S. and Canada.

The factories are in Fullerton, California; San Leandro, California; Federalsburg, Maryland; St. Marys, Ontario, Canada; Campbell, New York; Lehigh Valley, Pennsylvania; and Madison, Wisconsin.

The factories will close in 12-24 months with the product lines being moved to existing factories.

Kraft Heinz will also shutter its Davenport, Iowa, meat processing plant with its production to be taken over by a nearby facility that is under construction, and move some of its cheese-making operations away from  Champaign, Illinois.  Where they will be moved to has not been announced.

In total, 2,600 jobs will be eliminated.

In addition, the company will relocate Oscar Mayer and its U. S. meats from Madison, Wisconsin, to Chicago. The move caught local union officials by surprise.

Michael Mullen, Senior Vice President of Corporate & Government Affairs at The Kraft Heinz Company, released a statement about the plant closings:

”Our decision to consolidate manufacturing across the Kraft Heinz North American network is a critical step in our plan to eliminate excess capacity and reduce operational redundancies for the new combined company.”

“This will make Kraft Heinz more globally competitive and accelerate the company’s future growth,” he added. “We have reached this difficult but necessary decision after thoroughly exploring extensive alternatives and options.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Kraft Heinz Slashing Ad Agency Dollars as Part of Cost Cutting

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Newly formed Kraft Heinz is looking to change the way it produces its advertising, as part of its goal in wringing $1.5 billion in annual savings out of the combined company.

After merging on July 2, 2015, Kraft Heinz is now third-largest food and beverage company in North America and ranked number five world-wide. The company has eight $1 billion+ brands.

The merger left Heinz’s ad agency out in the cold. In late August, management shifted the Heinz accounts that had been handled by Interpublic’s UM to Kraft’s agency Starcom MediaVest Group’s Starcom. In addition, Kraft Heinz is now reviewing all of its creative accounts, according to Ad Age.

Ad Age reports that all the creative agencies have been asked to provide information and those chosen will be responsible for creative ideas, but will no longer provide the actual production of the ads, which will go directly to production houses.

Cost-Cutting Across the Board

Kraft Heinz’s chief executive Bernardo Hees is a partner in 3G Capital, which teamed with Berkshire Hathaway take over both companies and merge them together. He came to the helm of the combined company after a stint as the chief executive at A.J. Heinz where he slashed 7,000 jobs and brought a tight-fisted approach that made no expenditure too small to be examined.

At Heinz, Hees imposed cost controls big and small that include cuts to travel expenses, limits on the number of printer copies that can be made each month, the elimination of snacks in break rooms, and new mandates on cutting electricity usage. After assuming the helm of Kraft Heinz he immediately cut 2,500 jobs in his first week.

Among the management changes Hees has made was the appointment of Nina Barton to Senior VP of Marketing Innovation, Research and Development. Ms. Barton first joined Kraft in 2011 and was most recently the VP of Marketing for Coffee. She reports directly to George Zoghbi who was appointed Chief Operating Officer of U.S. commercial business.

Gone were Tom Bick, who was Heinz’s senior director-integrated marketing communications and advertising for the Oscar Mayer business, and Kara Henry, who was Heinz’s senior marketing director, communications and agency relations.

Warren and Charlie Agree

Warren Buffett and Charlie Munger’s have both supported Hees’s approach, believing that these legacy food companies, which both date back to the 1800s, need cost-cutting to be competitive in the 21 century.

“3G has been buying businesses that have too many people,” Buffett explained at the 2015 Berkshire Hathaway annual meeting. “You will have never found a statement from Charlie or me saying that a business should have more people than needed.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

No More Elephants For Buffett’s Famed “Elephant Gun,” For Now

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Warren Buffett likes to refer to his hunting for big companies, such as his acquisition of BNSF Railway, and the recently announced Precision Castparts Corp., as hunting for elephants with his “elephant gun.”

While each year Berkshire does on average $3 billion of bolt-on acquisitions for its various companies, it takes something really elephant-sized to move the needle on a conglomerate with a market value of a third of a trillion dollars.

Those kinds of deals, be they BNSF, Kraft Heinz, or Precision Castparts, also mean that the Buffett’s elephant gun will be quiet while he refills the cash coffers. Berkshire is spending down its $66 billion in cash by $20 billion, and Buffet likes to maintain at least $20 billion in cash as a reserve in the case of economic downturns.

Buffett Reloads the Cash

“This takes us out of the market for an elephant but we will probably be buying a few small things in the next 6 months,” Buffett recently remarked, explaining the deal for Precision Castparts. “We are in negotiations on a couple but in terms of a deal of similar size it pretty much takes us out. What we will probably do on this one, we will probably borrow about $10 billion and use about $23 billion of our own cash on that order. We’ll be left with over $40 billion probably in cash when we get all through. But I like to have a lot of cash at all times, so this means we have to reload over the next 12 months or so, but it doesn’t preclude doing smaller deals, but we will be doing a few probably.”

That’s The Way The Cookie Crumbles

So, despite the recent excitement around activist investor Bill Ackman of Pershing Square having taken a $5.5 billion stake in snack food company Mondelez, perhaps with the goal of seeing it sold to a buyer like Berkshire, don’t look for it to merge into either Berkshire or Kraft Heinz any time soon.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Could Kraft Heinz Be Ready To Gobble Up Mondelēz?

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When activist investor Bill Ackman took a $5.5 billion stake in Mondelēz International, Inc., everyone started looking at Kraft Heinz as a potential buyer for the snack food company. After all, Berkshire and 3G Capital have been busy wringing cost savings out of the newly united food giant, and it could make sense to add Mondelēz, which split off from Kraft in October of 2012. Mondelēz was supposed to be the more exciting part of the split, but its performance since then has been lackluster.

So, is Warren Buffett interested? Not in the short term, according to his comments Monday during an appearance on CNBC.

“Well, I will listen to anything my friends at 3G want to do, but with Kraft Heinz we have our work cut out for us for a couple of years,” Buffett said “I think it is quite unlikely, you never want to say anything is impossible, but I think it is quite unlikely that Kraft Heinz would be doing a big acquisition in the next couple of years. Somewhere down the road I wouldn’t be surprised. But, it also would have to make sense financially, and frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all of the work needed at Kraft Heinz. A lot of the companies are selling at prices that sort of reflect improvements in them that people sort of what has been happening at Kraft Heinz, and believe me this is not easy.”

Placing the Cart Before the Horse

According to Buffett, now that 3G proved it could wring savings out of Heinz, the other big food manufacturers became priced such that the savings is already factored into their share price.

“Well, it would be hard for us to make a deal that makes sense, yeah. But who knows what happens down the line, but if you look at Kellogg or Campbell’s Soup or Mondelēz, they’re prices to some extent the market has put into those companies prices that reflect an expectation Kraft Heinz type margins are possible, and that may be the case, but I have not seen it elsewhere.”

So, while the door’s open a crack, Buffett’s in no rush to go through it.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Kraft Experiences 3G’s Heinz Hatchet

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Now that Kraft is part of Kraft Heinz, the aggressive cost cutting that 3G Capital brought to Heinz has come to Kraft as well. Gone are the days of a host of perks, including a free supply of Kraft snack foods for employees, or even minifridges in the office.

It’s no surprise, as 3G is known for imposing cost controls big and small that include cuts to travel expenses, limits on the number of printer copies that can be made each month, the elimination of snacks in break rooms, and new mandates on cutting electricity usage.

The same goes for personnel, and 3G has already begun trimming and replacing employees, including the departure of Kraft’s Chief Financial Officer James Kehoe.

What Do Warren and Charlie Think?

While 3G’s ruthless cost-cutting has dismayed some Berkshire shareholders, it has not offended either Warren Buffett or Charlie Munger, who see it as necessary to keep complacent, century-old companies competitive in the modern world. After all, layoffs were in Berkshire Hathaway from the start, as Buffett fought to keep the failing textile company afloat.

At the 2015 Berkshire Hathaway annual meeting both Warren Buffett and Charlie Munger strongly supported 3G’s strategy.

“3G has been buying businesses that have too many people,” Buffett explained. “You will have never found a statement from Charlie or me saying that a business should have more people than needed,” Buffett added.

The cost cutting has also pleased Wall Street, as shares of Kraft Heinz (KHC) are already up roughly 9% since their trading debut on July 7.

Berkshire’s move to partner with 3G, which combined own 51% of Kraft Heinz, with Berkshire the largest single shareholder at 26%, has been a very profitable way for Berkshire to put its mountain of cash to use. Andrew Bary of Barron’s calculated that Berkshire’s $9.25 billion investment in Heinz and Kraft are now worth $16 billion. He called it “a stunning profit in just two years.”

With 3G also having turned to Berkshire for cash to finance its Burger King takeover of Tim Hortons, a move that has gave Berkshire 8% of the combined company, it looks like Buffett’s and Munger’s interest in 3G’s management style is growing not waning.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire’s Hidden Ownership of Kraft Heinz Shares

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Berkshire Hathaway has come out of the Kraft Heinz merger as its biggest single shareholder with 325,442,152 shares of common stock and 80,000 shares of 9% cumulative compounding preferred stock, Series A.

Berkshire’s partner in the acquisition, 3G Capital, is the second largest shareholder with 293,536,058 shares of common stock.

Combined, Berkshire and 3G own 51% of the new consumer food giant.

Berkshire’s Additional Hidden Ownership

As they say in the TV ads, “But wait there’s more!”

Berkshire Hathaway has an additional ownership stake in Kraft Heinz through the pension fund of its subsidiary, Benjamin Moore & Co.

Benjamin Moore’s retirement plan owns 192,666 shares of common stock in its own right.

As usual with all things Berkshire Hathaway, it’s good to keep in mind that the conglomerate is like a series of nested dolls, and in its companies, or sometimes even in its companies within its companies, there are often hidden treasures.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Becomes Majority Shareholder in Heinz

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On Wednesday, June 17, Berkshire Hathaway exercised warrants it owned to purchase about 46.2 million Heinz shares. The purchase, which cost Berkshire only $462,000, makes Berkshire the majority shareholder with ownership of 52.5 percent of H.J. Heinz.

Berkshire’s ownership stake will be diluted once the merger of Kraft and Heinz goes through, however, Berkshire will still be the largest shareholder in the combined company.

The other major shareholder will be Brazilian private equity firm 3G Capital.

Kraft Heinz will be 51 percent owned by 3G Capital and Berkshire Hathaway. Kraft shareholders will own the remaining 49 percent. On June 9, a waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), as amended, expired with regard to the proposed merger.

The expiration of the HSR Act waiting period satisfies one of the conditions to the closing of the proposed transaction, which remains subject to approval by Kraft shareholders, antitrust clearance in Canada and other customary closing conditions.

Heinz also received notice that the Canadian Competition Bureau has issued a “no action” letter indicating that the Bureau does not intend to challenge the companies’ proposed merger.

The deal is expected to close in the second half of 2015.

Powerful Brands

The combined company will have a portfolio of packaged food brands that includes Heinz ketchup, Philadelphia cream cheese, and Oscar Mayer meats.

Kraft has $18 billion in annual sales, employs 22,500 workers, and boasts that 98 percent of U.S. and Canadian households have Kraft products in their kitchens. Nine of Kraft’s brands have more than $500 million in annual sales, and 80 percent of sales are in categories where they hold the #1 or #2 market position.

Kraft Heinz will have $28 billion in sales with eight $1+ billion brands and five brands between $500 million-$1 billion.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.