A decade after Buffett's "merger of the century," Kraft Heinz is reportedly close to a breakup.
Kraft Heinz Company (KHC.US) is close to finalizing a split plan, intending to separate this major American food and beverage company into two independent entities, with an official announcement possibly coming as soon as next week.
According to sources, the food giant plans to spin off its grocery business—which includes products such as Kraft Mac & Cheese, Velveeta cheese, Jell-O, and Kool-Aid—into a separate entity valued at approximately $20 billion; the remaining business will focus on faster-growing categories such as ketchup and condiments, forming a smaller independent company.
This split essentially reverses the 2015 merger between Kraft Foods Group and H.J. Heinz Company, which originally created the third-largest food and beverage company in the United States.
The 2015 merger was driven by Warren Buffett’s Berkshire Hathaway and 3G Capital. According to the agreement at the time, Kraft shareholders held 49% of the merged company, while Heinz shareholders held 51%. In addition to shares of the merged company, Kraft shareholders also received a special cash dividend of $16.50 per share, fully funded by Heinz shareholders (Berkshire Hathaway and 3G Capital) through equity contributions. At the time of the merger, the combined revenue of the two companies was about $28 billion, but this figure subsequently shrank to $6.35 billion.
Buffett said at the time of the merger, “I am very pleased to be involved in bringing together these two outstanding companies and their iconic brands. This is exactly the kind of transaction I like—combining two world-class organizations to create value for shareholders. I am excited about the future opportunities for this newly merged company.”
To boost profits, the newly formed Kraft Heinz Company immediately launched cost-cutting initiatives and embarked on an acquisition spree, including the failed $143 billion bid for Unilever (UL.US) in 2017.
However, while the company was busy cutting costs and seeking acquisitions, it failed to notice that consumer tastes had shifted toward healthier food choices. As market demand for processed cheese, hot dogs, and similar products declined, the company’s sales came under pressure. Ultimately, it had to admit that the valuations of its Kraft and Oscar Mayer brands were far below expectations, resulting in a $15 billion asset impairment charge.
Additionally, then-CEO Bernardo Hess also admitted the failure of zero-based budgeting (where every budget cycle requires all expenses to be justified from zero). In 2019, Hess stated, “We were overly optimistic about the effects of cost savings, and those expectations ultimately were not realized.”
Amid a series of difficulties, Kraft Heinz’s stock price continued to fall. After peaking in 2017, its share price dropped by a cumulative 61% over the decade following the merger, while the S&P 500 index rose by as much as 237% during the same period.
This performance forced Berkshire Hathaway to further write down its 27.4% stake in Kraft Heinz, following a $3 billion impairment in 2019 with an additional $3.8 billion write-down.
Weighed down by rising production costs, Kraft Heinz’s profitability has also continued to decline, and by 2025, it had fallen into losses.
With virtually no other options, the company is now considering a split to resolve its difficulties, but this strategy is unlikely to rescue the struggling food and beverage giant.
Seeking Alpha investment platform analyst Alan Galecki commented, “I don’t see any value being created by the split,” adding, “I worry that we’ll just end up with two ‘sickly’ companies.”
Another analyst team, TQP Research, added: “The proposed split requires both independent entities to achieve strong profit and loss growth, but empirical evidence shows that Kraft Heinz’s split is unlikely to create new value for shareholders.”
Wall Street seems to share this view. Since rumors of the split first emerged last month, Kraft Heinz’s stock price has risen only 3%.
