A-B InBev’s Top Shareholders are Behind the $40 Billion Kraft Acquisition

kraft_heinz

The Brazilian billionaires behind the Anheuser-Busch InBev merger have negotiated another blockbuster deal, this time involving two huge U.S. food companies – Kraft Foods and H.J. Heinz Co.

The tieup, valued at $40 billion, is backed by global investment firm 3G Capital and Warren Buffet’s Berkshire Hathaway Inc. The combination of the Kraft and Heinz businesses would create the fifth-largest food and beverage company in the world, and is scheduled to close in the second half of 2015, according to a company statement.

Shares of Kraft Foods skyrocketed on Wednesday – up 35 percent as of press time — after the company confirmed a Wall Street Journal report published early Tuesday evening.

While the deal itself has little immediate impact on the U.S. beer business, the announcement had ramifications for that part of the financial community that, for months, has speculated that 3G was raising funds for an acquisition of SABMiller.

But even there, the question of the ultimate impact had no single answer.

“We see no impact on the odds of a potential ABI acquisition of SABMiller, and would use potential weakness in SAB and TAP as a buying opportunity,” wrote Robert Ottenstein and Eric Serotta, beverage analysts with New York-based research firm Evercore ISI.

Townsend Ziebold, the managing partner at First Beverage Group, which advises and invests in beverage brands, offered a slightly different take.

“3G does not control ABI, but certainly has significant influence,” he wrote to Brewbound in an email. “If ABI can finance a purchase of SAB off the combined companies’ balance sheets with incremental debt, I think today’s Kraft deal has no effect.”

“If ABI needs to tap external sources such as 3G or Berkshire Hathaway,” he added, “I do think it on the margin reduces the chance for an SABMiller deal.”

Jorge Leamann

Jorge Leamann

Ziebold also pointed out that, along with price considerations, SAB and ABI have conflicting non-alcoholic beverage investments overseas, and that certain holdings and joint ventures would need to be divested or unwound as obstacles to a deal.

Ottenstein and Serotta also downplayed some investors’ views that the announcement announcement would be a “negative” for an A-B InBev and SABMiller merger if Buffett participated in the Kraft acquisition.

Berkshire Hathaway and 3G do plan to invest $10 billion in the newly formed joint entity “The Kraft Heinz Company,” which will have revenues of approximately $28 billion, but, noted Ottenstein and Serotta, “Based upon our discussions with debt capital markets experts, ABI would probably not need Buffett to finance a cash and stock bid for SAB.”.

3G doesn’t own or control A-B InBev, but its founding partners – Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Herrmann Telles – jointly control 26 percent of the company’s shares. Lemann, according to Bloomberg, is ABI’s largest individual shareholder.

To acquire those shares, the trio orchestrated a $52 billion takeover of Anheuser-Busch in 2008, and, according to the book Dream Big — the story of the Lemann, Sicupira and Telles partnership — also committed 1.5 billion Euros of their own capital to make the transaction happen amidst the year’s catastrophic global banking collapse.

After the deal finally closed that November, the investors tasked Carlos Brito — then North America zone president of InBev with cutting costs and improving profitability in his new role as CEO of A-B InBev. In doing so, Brito introduced the group’s “zero-based budgeting” technique — where every expense must be justified each year — and cut nearly 1,400 jobs. Similar tactics have already been introduced at Heinz, which 3G and Berkshire Hathaway teamed up to buy for $23 billion in 2013.