Editor's Plate: Heinz Krafting a Bad Deal

April 24, 2015
Instead of a renaissance of two venerable firms, this will be a race to the bottom (line).

I was sad enough back in early 2013 when I heard about two investment firms taking Heinz Co. private. Now I’m distraught that Heinz is merging with Kraft. Or, as I recently said to a coworker: taking Kraft down with it.

Let’s face it: This merger is not about creating exciting new products, funding the R&D needed to get into novel growth categories or even about rejuvenating old but solid brands and products. It’s not about investing in and nurturing up-and-coming companies that have the Next Big Thing.

It’s about subtraction by addition: seeing how many plants can be shut down, how many people laid off and how many brands sold off to make the investors even richer than they are. And most of those investors are from Brazil, not the U.S.

Sure, nearly half of Heinz and presumably a similar proportion of Kraft Heinz will be owned by Warren Buffett and his Berkshire Hathaway investment firm. And Buffett is revered as both a savvy investor and a humanitarian. But first and foremost, he’s the world’s third-richest person, and you don’t get that way without lining your own pockets.

Before you can fund programs to teach microfinance in developing nations, you gotta lay off a couple thousand hard-working, middle-class Americans. In the companies his investment firm has taken a stake in, they’ve profited from wringing out inefficiencies – and, in most cases, that means eliminating jobs and plants.

In the announcement of the Heinz-Kraft deal, Bernardo Hees, Heinz’s CEO, said: “Over the past two years, we have transformed Heinz into one of the most efficient and profitable food companies in the world while reinvesting behind our key brands and continuing our relentless commitment to quality and innovation.”

I’m having a hard time putting my finger on the “reinvesting in key brands” and “relentless commitment to quality and innovation” while reading through the company’s financial reports. But those reports do note these accomplishments: six factories closed in U.S., Canada and Europe, the reduction of 4,050 “corporate and field positions” and the elimination of 1,800 factory jobs.

Now that is impressive! It would take most companies several years to accomplish that many plant closings and that many layoffs, but Heinz management did it in a little more than one year.

And as far as sales growth and profitability go: Heinz had sales of $11.5 billion and $1.1 billion in income in the fiscal year that ended April 28, 2013, just before the acquisition by 3G and Berkshire Hathaway. In calendar 2014, sales were down to $10.9 billion and profits down to $672,388.

Kraft employees: See what you have to look forward to.

A painful irony in our annual Capital Spending Outlook: Heinz shut down a plant in Pocatello, Idaho, only to have Amy’s Kitchen buy it.

Will there be a Kraft Heinz Co. in 2020, or will it go the way of General Foods and Nabisco? I hope Heinz, Kraft and their investors prove me wrong, I really do. Time will tell.

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