- Kraft Heinz may undo 2015 merger and split grocery and sauces businesses
- Shares are down 63% since July 2015
- Shares are down by nearly three-quarters since failed bid for Unilever in 2017
- UK group’s shares are up by 40% since that approach and trade nearly a fifth above the initial offer price
- Kraft Heinz investors hoping for the valuation uplift that followed the Kellogg break-up of 2023
“Warren Buffett’s Berkshire Hathaway investment vehicle has swallowed losses of $6.8 billion on its 27% stake in Kraft Heinz, amid admissions it overpaid for its stake, and the Sage of Omaha may now be hoping that a rumoured break-up of the Pittsburgh-headquartered food group will help to ease the pain,” says AJ Bell investment director Russ Mould.
“The demerger at Kellogg in 2023 unlocked some value and perhaps Kraft Heinz is looking to cook up something similar, after a 75% slump in the company’s share price since the merger between H.J. Heinz and Kraft back in July 2015.
“That desperate showing explains why Berkshire Hathaway has had to eat substantial losses, and also why shareholders in London-listed Unilever may continue to thank their lucky stars that Kraft Heinz failed in its attempt to buy the Dove-to-Marmite group in 2017, with a cash-and-stock offer that equated to £39.50 per share, or some £113 billion, before adjusting for its debts, cash pile and pension deficit.
“Roughly 60% of that offer came in cash - $30.23 a share – while the rest of the takeover was to be funded by giving investors 0.222 shares in the newly-merged entity in exchange for each one they already owned in Unilever.
“Instead, Unilever’s shares are up by 40% from the date of Kraft-Heinz’s swiftly aborted approach and stand almost a fifth above that putative offer price of £39.50 a share.
Source: LSEG Refinitiv data
“The turgid performance of Kraft Heinz’s shares reflects how the company has failed to progress either of its top or bottom lines over the past decade.
“Revenues have remained stuck around the $25 billion-a-year mark.
Source: Company accounts, Marketscreener, consensus analysts' forecasts
“Net, or after-tax, income has generally hovered around $3 billion on an annual basis at Kraft Heinz, albeit with outliers that are largely the results of accounting issues, notably the $8 billion brand write-downs of 2018 and the $9.3 billion impairment charge taken in the second quarter of this year. For all of that, analysts expect $3.2 billion of net profit in 2026, a little below the $3.5 billion generated in 2025.
Source: Company accounts, Marketscreener, consensus analysts' forecasts
“Perhaps the brand-grab that would have come with the acquisition of Unilever could have helped, and doubtless Kraft Heinz and its backers would have been ruthless with costs in the wake of any acquisition.
“But the deal did not happen, and Kraft Heinz’s lack of earnings momentum means its shares have done worse than those of Unilever, and indeed many of its peers among the global food groups, regardless of whether their shares are listed in New York, Paris, London or Zurich.
Source: LSEG Refinitiv data. *Date of Kraft and HJ Heinz merger. **Date of Kraft Heinz bid for Unilever
“The share price slide also leaves Kraft Heinz’s shares on a low multiple of earnings relative to those peers. Investors are also demanding a higher dividend yield to compensate themselves for the risks they perceive.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Refinitiv data
“Management may now be looking to do something about both the share price slide and the stock’s resulting valuation, if the rumours of a break-up prove accurate. The 2023 split of Kellogg into WK Kellogg and Kellanova has unlocked some value, as shares in both entities are up by more than a third since the autumn 2023 demerger.”
Source: LSEG Refinitiv data
