Kraft Heinz: the food industry's "marriage of the century" ended in divorce

The merger of the century in the grocery industry has ended in divorce. Kraft Heinz, one of the largest mass-market food players in the US, announced that the company will split into two independent businesses. After the announcement, Kraft Heinz shares sagged 7%. The ideologue of the merger - Warren Buffett - was skeptical of the split, Moody's and Fitch agencies launched a credit rating review. Why, ten years after a high-profile merger, is the company deciding to go for a split and what does it mean for investors?

The story of Kraft Heinz begins with two young men.

In 1869, Henry John Heinz opened a family business in Pennsylvania selling horseradish and pickles. The first years almost ended in failure: in 1873 the company went bankrupt due to financial panic. But Heinz restarted the business and in just three years brought to the market a product that changed the fate of the brand - tomato ketchup. Heinz became a pioneer in quality standards: glass bottles, the Clean Food Act, which Heinz actively promoted, ensured consumer confidence. By the middle of the 20th century, Heinz had become a global player with production on three continents.

34 years after Heinz was founded, in 1903 in Chicago, James Lewis Kraft opened his business with only $65 in seed money: he sold cheese from a wagon. Thirteen years later, he would receive a patent for a technology to produce processed cheese in cans: because the product kept for a long time, it became popular with the U.S. Army during World War I, and it quickly brought the business to the national level. Kraft became a symbol of "American-style mass cuisine": Kraft Singles (processed cheese slices), Kraft Macaroni & Cheese (packaged macaroni and cheese mix), Jell-O (powdered gelatin dessert).

By the early 2010s, Heinz remained the global leader in ketchups and sauces, while Kraft dominated the North American market for cheese, pasta and sausage products. Their merger in 2015 was the "marriage of the century."

In 2015, Warren Buffett's Berkshire Hathaway and Brazil's 3G Capital brought two brands together under one roof. The $45 billion mega-merger was to create the world's fifth-largest food manufacturer.

The logic of the deal seemed compelling: Heinz brought to the alliance an international presence and a strong position in emerging markets, while Kraft brought power in North America. The plans included global expansion of Kraft brands through the Heinz network, $1.5 billion in annual economies of scale, and increased negotiating power with major retailers. Buffett called the investment "his kind of deal."

At launch, the combined Kraft Heinz looked impressive: the stock was trading at around $79-82, with eight brands in the portfolio worth more than $1 billion each and another five with revenues between $500 million and $1 billion. At the end of 2015, annual revenues totaled $18.3 billion. At its peak, the company's capitalization exceeded $110 billion. But in 2024, sales began to decline ($25.8 billion vs. $26.6 in 2024). Kraft Heinz's earnings per share peaked in 2017 at $3.55, but fell to $3.06 by 2024, with a forecast for 2025 predicting a drop to $2.59.

Economies of scale turned out to be a trap: instead of growth, the company received a policy of strict optimization. Under 3G Capital's management, Kraft Heinz laid off more than 5,000 employees in the first year, closed seven plants, and one of its employees claimed in an interview with Business Insider that her stationery expenses were cut to $5 a year. In the race to save money, brand equity was being eaten up faster than it was being created. Slashed marketing budgets and lack of investment in new products led to the erosion of even the strongest product lines. Velveeta, which had dominated the processed cheese market for decades, recorded a steady decline in sales: minus 1-3% year-over-year. Lunchables, once the symbol of school lunchboxes, lost 12% of sales per quarter in 2024 and was excluded from the national school meals program (according to the company, because demand did not reach the targets, Consumer report magazine claimed that the products were unsafe and demanded the U.S. Department of Agriculture to deprive the company of the right to supply products to schools). At the same time, retailers' own brands were gaining traction by offering cheaper alternatives, and the growing trend toward "clean" and organic products made Kraft Heinz's branded portfolio less and less relevant.

The financial results of Kraft Heinz's new policy have been devastating. Already in 2019, the company took one of the largest write-downs in the history of the U.S. food industry - $15.4 billion, mainly for the Kraft and Oscar Mayer brands. The stock plummeted by nearly 20%, with the company's market value falling by $12 billion in 24 hours. In 2025, another blow followed: another $9.3 billion of write-downs in the second quarter. Over the course of its life together, Kraft Heinz's capitalization fell by more than $77 billion - from a peak of $110+ billion to ~$33 billion. For Berkshire Hathaway, this translated into cumulative losses of more than $6 billion and having to recognize losses on the investment twice.

In early September, Kraft Heinz announced that the company would split into two publicly traded businesses. After a strategic review that lasted several months, the decision was unanimously approved by the board of directors. "The complexity of our current structure makes it difficult for us to effectively allocate capital, prioritize and scale our most promising businesses. By splitting into two companies, we will be able to give each brand the attention and resources it needs to reach its potential. This will help us improve our results and increase shareholder value over the long term," explained Chairman Miguel Patricio.

In essence, the division will go through the already existing global divisions. The first, Global Taste Elevation Co. - will focus on the Heinz, Philadelphia and Kraft Mac & Cheese brands. This division generated $15.4 billion in sales and $4 billion in EBITDA in 2024. Up to 75% of revenue comes from sauces, condiments and spreads, with emerging markets contributing about 20% and the Away From Home segment (HoReCa and foodservice) another 20%.

The second global division, North American Grocery Co. - combines Oscar Mayer, Kraft Singles and Lunchables. In 2024, it had sales of $10.4 billion with EBITDA of $2.3 billion. Carlos Abrams-Rivera, current CEO of Kraft Heinz, will lead this division.

Kraft Heinz analysts estimate that the separation will result in additional costs of about $300 million, mainly due to duplication of functions and logistics. However, the management assures that part of these costs will be compensated. The transaction will be a tax-free spin-off, and total dividend payments to shareholders will remain at the same level.

Nevertheless, the decision to split Kraft Heinz is fixed: by the end of 2026, the market will have two independent players with different business logic - the same as it was before the merger: a global company in sauces and condiments and a North American giant in the cheese, meat and prepared foods categories. Investors will be able to evaluate the result after the first quarters of the new structures' operation.

Warren Buffett (his Berkshire Hatraway is the largest shareholder of Kraft Heinz) was as blunt as possible: "It wasn't a brilliant idea to merge them, but I don't think splitting them up will fix it. His words only intensified the negative reaction of the market: if immediately after the announcement of the separation the company's securities fell by more than 4%, after Buffett's comment the fall accelerated and by the end of the session reached 7%.

The next day, the market tried to recoup its losses, with shares up 2.3% after a Morgan Stanley upgrade where analysts said"the worst is over." They called Kraft Heinz's move a "strategic reset" and upgraded the stock to Equal Weight with a $29 target. In contrast, BofA and Wells Fargo lowered their target price to $27 and emphasized that it remains an open question whether the "divorce" will create real shareholder value.

The growth of shares compensated only part of the fall - as of September 5, the securities remained 15.3% below the annual highs. Moody's and Fitch placed Kraft Heinz 's credit rating on review with a possible downgrade, pointing to the maturity of the portfolio and the uncertainty of the future capital structure.

The Kraft Heinz split does not remove systemic vulnerabilities. The experience of similar deals shows that actual costs are often higher than forecasts, and investors are wary of a repeat of this scenario.

Another risk factor is the maturity of the portfolio. Many of Kraft Heinz's brands have reached a ceiling in key markets and are starting to give up ground. Oscar Mayer has depreciated more than $3.3 billion since 2018 and lost 3.5% of revenue in the meat snack category between 2024 and 2025.

The company's financial structure also remains under pressure. At the end of 2024, Kraft Heinz had more than $19 billion in net debt. How the debt will be divided after the company is split will be announced later.

The shareholder factor adds uncertainty: Berkshire Hathaway owns 27.5% of Kraft Heinz, and the market admits the possibility of share reduction. Massive sell-off by the largest shareholder can cause additional pressure on quotations.

Finally, the industry background works against the company. Rising prices for raw materials - dairy products, meat, sugar - reduce margins. At the same time, the popularity of GLP-1 weight loss products (Ozempic, Mounjaro) is reducing demand for high-calorie foods: according to NielsenIQ, 66% of users of such products have become less likely to eat snacks. For a company whose sales base is built on macaroni and cheese, processed meats and sugary drinks, this is a structural challenge.

But the Kraft Heinz split has potential. The new Global Taste Elevation will focus on the high-potential brands - Heinz and Philadelphia. They maintain global leadership and strong pricing power, and their Away-From-Home sales are up 14%.

Morningstar analysts believe the key value of the demerger is in the revision of market valuations. Right now, all of Kraft Heinz is trading at an EV/EBITDA multiple of about 8.3. After the split, Global Taste Elevation could be valued closer to 14 and North American Grocery could be valued around 9, they predict.

North American Grocery (which will include Oscar Mayer, Kraft Singles and Lunchables) will retain another value - stable cash flow. Most of the sales here come from brands that rank first or second in their categories. These include Oscar Mayer in meat products and Kraft Singles in processed cheese. This portfolio makes the company a reliable "cash flow generator" that can mitigate the risks of the more expensive and volatile premium segment.

The dividend policy of the companies remains unchanged: the management assured that total payouts will remain at the current level, providing about 6% yield.

This article was AI-translated and verified by a human editor