Kraft Foods
Kraft Foods to merge with H.J. HeinzReuters

Kraft Foods has confirmed its merger with H.J. Heinz, owned by Brazilian private equity firm 3G Capital and billionaire investor Warren Buffett's Berkshire Hathaway.

The company said it made a merger agreement with H.J. Heinz to create the third-largest food and beverage firm in North America and the fifth largest in the world. The combined entity will be named The Kraft Heinz Company, and will be headed by Bernardo Hees, CEO of Heinz.

Alex Behring, chairman of Heinz and the managing partner at 3G Capital, will become the chairman, while John Cahill, Kraft chairman and CEO, will become vice chairman.

Earlier, there were reports that 3G Capital is in negotiations to acquire Kraft Foods in a deal worth more than $40bn (£26.8bn, €36.6bn). The reports also suggested that Kraft will be merged with H.J. Heinz.

As per the deal, which has been approved by the boards of both companies, Kraft shareholders will own a 49% stake in the combined company, and current Heinz shareholders will own 51% on a fully diluted basis.

Kraft shareholders will receive stock in the combined company and a special cash dividend of $16.50 per share. The aggregate special dividend payment of approximately $10 billion is being fully funded by an equity contribution by Berkshire Hathaway and 3G Capital.

The new company will have revenues of about $28bn with eight brands generating more than $1bn.

"By bringing together these two iconic companies through this transaction, we are creating a strong platform for both U.S. and international growth. Our combined brands and businesses mean increased scale and relevance both in the U.S. and internationally," said Alex Behring, chairman of Heinz and the managing partner at 3G Capital.

"We have the utmost respect for the Kraft business and its employees, and greatly look forward to working together as we integrate the two companies."

"I am delighted to play a part in bringing these two winning companies and their iconic brands together. This is my kind of transaction, uniting two world-class organizations and delivering shareholder value," said Buffett.

"Together we will have some of the most respected, recognized and storied brands in the global food industry, and together we will create an even brighter future," said Cahill.

"This combination offers significant cash value to our shareholders and the opportunity to be investors in a company very well positioned for growth, especially outside the United States, as we bring Kraft's iconic brands to international markets."

The transaction is expected to close in the second half of 2015, subject to approval by Kraft shareholders, receipt of regulatory approvals and other customary closing conditions.