Heinz, co-owned and run by Jorge Paulo Lemann’s 3G Capital has signed a definitive merger agreement with Kraft Foods Group Inc (NASDAQ:KRFT) in a deal that will result in Kraft merging with Heinz, which the Brazilian investment firm co-owns in equal parts with Warren Buffett’s Berkshire Hathaway. The two firms purchased the iconic food and condiment company for $23 billion in 2013. The current deal will pay Kraft shareholders $16.50 in cash, as well as shares in the newly-merged The Kraft Heinz Company, which will be the fifth-largest food company in the world, with annual revenues of approximately $28 billion. The news has sent shares of Kraft up by 34%, elevating Kraft’s market-cap to over $47 billion.
As with the Heinz deal, and given the financial enormity of the deal, 3G again required the backing of Warren Buffett, who helped to fund some of the firm’s past purchases, including the aforementioned Heinz purchase, and Burger King’s purchase of Tim Horton’s last year (3G owns 51% of the new entity). Buffett was also quoted as saying that he would consider working together with 3G again on the right friendly takeover opportunity in the future, should one present itself, which it clearly has. Buffett and 3G will equally cover the special cash dividend payment to Kraft shareholders, which will be approximately $10 billion.
Best known for its macaroni and cheese (which has become synonymous with that food product), Kraft Foods Group Inc (NASDAQ:KRFT) has done little to expand into markets outside of North America, while inside of it, it has experienced stagnant growth due to shifting consumer trends. The company’s revenue for fiscal 2014 was essentially flat at $18.21 billion, while net income fell by 62% on the year to $1.04 billion. Furthermore, among the company’s brands, which includes Jell-O, Maxwell House, and Oscar Mayer, none of them experienced market share growth within their individual market segments during the past year, while 40% of them lost market share.
It’s likely 3G Capital will work to restructure Kraft Foods Group Inc (NASDAQ:KRFT) similar to how it has Heinz, in which it has slashed hundreds of jobs and closed plants. Kraft’s CEO John Cahill had previously been asked about that mounting pressure being felt by the industry to cut overhead in the wake of the Heinz purchase, and agreed that there were many opportunities left for such cost-cutting endeavors at Kraft, without hurting revenues. Now those responsible for Heinz’ cuts will oversee the ones at Kraft, as the two companies will be integrated with each other, which is expected to produce significant synergy opportunities.
Investors who stood to gain the most from the huge spike in Kraft’s shares today were Phill Gross and Robert Atchinson’s Adage Capital Management, and billionaires Ken Griffin and Israel Englander, who were the top three shareholders of Kraft at the end of 2014, among the funds we track. Adage held 2.57 million shares, while Griffin and Englander held 1.74 million and 1.43 million shares respectively. Overall fund ownership stood at 36 funds at the end of the year, compared to 37 at the end of the third quarter, while the value of capital increased to $744 million from $645 million.
Aside from its ownership and management of several companies, 3G Capital also holds an equity portfolio, which is managed by Alexandre Behring and is valued at $1.08 billion as of the end of 2014. Ignoring its stake in the S&P 500 ETF (SPY), the firm’s largest long position is in Santander Consumer USA Holdings Inc (NYSE:SC), in which it owns 3.15 million shares valued at $61.75 million. The position was increased by 21% during the fourth quarter. Santander Consumer USA Holdings Inc (NYSE:SC), a holding company primarily involved in auto financing and services, counted Lee Ainslie’s Maverick Capital as its biggest shareholder among the funds that we track. Ainslie’s Maverick Capital held 14.45 million shares of Santander at the end of 2014.
Twenty-First Century Fox Inc (NASDAQ:FOX) represents the next-largest stake in terms of value in 3G’s equity portfolio. 3G holds 1.65 million shares of Fox valued at $60.73 million, according to its 13F filing. The U.S cable giant has been down slightly since the start of 2014, amid its attempt to buy Time Warner Inc (NYSE:TWX). The company run by Rupert Murdoch later withdraw its bid, which had been valued at about $80 billion. Donald Yachtman’s Yachtman Asset Management and Jeffrey Ubben’s ValueAct Capital are the two largest Twenty-First Century Fox Inc (NASDAQ:FOX) shareholders among the funds we track with 39.21 million and 30.30 million shares respectively.
3G is also an investor in Time Warner Cable Inc (NYSE:TWC), who was on the other end of a merger play in 2014, as the cable company was purchased by Comcast Corporation (NASDAQ:CMCSA) for $45 billion, pending approval from the Federal Communications Commission, which has been delayed recently. 3G opened a new position in Time Warner Cable during the fourth quarter and holds slightly below 368,700 shares valued at $56.06 million as of the end of 2014. Chris Hohn’s Children’s Investment Fund is the largest Time Warner Cable shareholder with 9.87 million shares.
These large-cap stocks fall outside the purview of our market-beating small-cap strategy, which managed to outperform the S&P 500 ETF (SPY) by 79.4 percentage points over the past two-and-a-half years, returning 132%. However, tracking activist campaigns and merger plays can provide opportunities for investors to see great returns even from large-cap companies, which is why keep track of most significant moves that hedge funds disclose in their filings with the Securities and Exchange Commission.
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