Heinz Kraft ketchup arranged in Hastings-on-Hudson, New York, US, on Tuesday, July 25, 2023.
In a significant shift for the food industry, Brazilian private equity firm 3G Capital, widely recognized as 3g Partners, has divested its substantial 16.1% stake in Kraft Heinz during the fourth quarter. This move marks the culmination of nearly nine years since 3G partners orchestrated the monumental merger between Kraft Foods and Heinz, a deal cemented in partnership with Warren Buffett’s Berkshire Hathaway.
This sale signifies the end of an influential period for 3G partners within Kraft Heinz. The firm’s direct involvement in the food conglomerate had been gradually receding. Once holding three board seats, their representation diminished to zero by July 2022, signaling a step back from active management.
According to a statement released by Kraft Heinz to CNBC, “3G partners has not been involved in the management of Kraft Heinz, nor have they been on the Board for several years. They remained as investors, treated in the same manner as any other investor.” The company further acknowledged, “We learned from their recent filing about 3G partners‘ complete exit from Kraft Heinz stock in 2023.”
Kraft Heinz emphasized the continued long-term commitment of Berkshire Hathaway, remaining the largest shareholder with a 26.8% stake. 3G partners did not provide immediate comments when contacted by CNBC for this report.
The alliance between Berkshire Hathaway and 3G partners commenced on Valentine’s Day 2013, marked by the announcement of their collaborative effort to take Heinz private. This initial venture paved the way for the subsequent merger with Kraft Foods two years later, creating a new giant in the packaged food sector.
Initially, the newly formed Kraft Heinz garnered investor enthusiasm, driven by robust earnings growth attributed to the cost-cutting strategies championed by 3G partners. This approach had previously proven successful for 3G partners in building the beer behemoth Anheuser-Busch InBev through strategic mergers and in revitalizing Burger King after taking it private.
However, the dynamics of the packaged food industry presented unique challenges. Evolving consumer preferences leaned towards fresher food options, while the rise of retailers’ private-label brands and health-focused newcomers began eroding the market share of established giants like Kraft Heinz. In pursuit of inorganic growth, Kraft Heinz launched a takeover bid for Unilever, but the offer was ultimately rejected by the maker of Popsicle.
Heinz Kraft ketchup arranged in Hastings-on-Hudson, New York, US, on Tuesday, July 25, 2023.
The year 2019 marked a turning point with a disastrous financial quarter for Kraft Heinz. A single earnings report revealed a dividend cut, an investigation by the Securities and Exchange Commission (SEC) into the company’s accounting practices, and a staggering $15 billion write-down of brand values.
Warren Buffett later admitted to CNBC that Berkshire Hathaway and 3G partners had overpaid for Kraft Heinz, influenced by an overestimation of the inherent value of its brands. Despite this, he publicly expressed his continued support for both 3G partners and Kraft Heinz. Nevertheless, many analysts attributed Kraft Heinz’s mounting difficulties to the aggressive cost-cutting measures implemented by 3G partners.
In an effort to steer the company back on course, 3G partners played a role in selecting a new chief executive from AB InBev, initiating a turnaround phase for Kraft Heinz. The company unveiled plans to increase investments in marketing and advertising and to refine its product innovation strategies. To mitigate competition from private-label brands, Kraft Heinz divested its cheese business to Lactalis and the Planters nuts brand to Hormel.
The gradual disengagement of 3G partners continued with Jorge Paulo Lemann, a founding partner, stepping down from the Kraft Heinz board in 2021. Alexandre Behring, another founding partner, followed suit in 2022. Subsequently, Joao Castro-Neves, the final 3G partners representative on the board and former CEO of AB InBev, also resigned. This last departure was disclosed in a regulatory filing with minimal public announcement.
3G partners had been progressively reducing its stake in Kraft Heinz since 2018. A significant sale of 25 million shares in 2019, amidst the company’s financial turmoil, triggered a 4% stock decline upon disclosure. In 2022, 3G partners distributed approximately 7% of its Kraft Heinz holdings to its fund investors, reportedly including tennis star Roger Federer.
Most recently, Kraft Heinz appointed Carlos Abrams-Rivera as its new CEO in 2023. While Abrams-Rivera has been with the company since 2020, his appointment is noteworthy as he is the first CEO without direct ties to 3G partners, signaling a new direction for the company as it moves beyond the era of 3G partners‘ influence.
