Skip to content

Transcript for Episode 5: Ketchup Wars: 3G’s Takeover of Kraft and Heinz

James Fontantella-Khan (00:05):

So I spent quite a bit of time in,in Allentown in Pennsylvania.

Aimee Keane (00:08):

This is James Fontanella-Khan. He's the US Corporate Finance and Deals editor at The Financial Times in New York.

James Fontantella-Khan (00:15):

It's one these's towns old, kind of, was famous for its steel plants, and it's kind of tradition of kind of unionized steel workers. S ense of real pride.

Aimee Keane (00:24):

He picked this area because he knew a local plant was shutting down in the aftermath of a big merger between Kraft and Heinz.

James Fontantella-Khan (00:31):

Often as an M&A reporter, you're focusing on company A buys company B, good or bad for shareholders, and then you move on. It's like, kind of do it again. Company A buys company blah, blah, blah. And I thought it was really important here to kind of get a sense of like how people on the ground got impacted by this.


One of the people I spent a considerable amount of time was a guy called Rod Miller at the time he lost his job, and I remember walking with him. It was like snowing. We were freezing our asses, and we were kind of waiting to get into the, the local kind of, um, job center. He was 61 years old and he was telling me, James, I mean like, what the hell am I gonna do? I've been doing Italian and Russian dressings for most of my life. And even I remember when I pressed him about, you know, I heard that Amazon and FedEx are coming to town. Mm-hmm. <affirmative>, isn't that kind of good? And he was just like, kind of, I don't, I don't, I don't really believe in the system anymore.

Aimee Keane (01:40):

This is The Closer, the inside story of the deals that change the world. I'm Aimee Keane.

There's an old mantra about running a corporation that's still taught in a lot of business schools today. It's the Milton Friedman idea that a company's primary role is to increase profits and to give those profits to its shareholders. This idea has been challenged in the last few years with consumers demanding that corporations address things like environmental and social issues, and that they do so at the expense of the bottom line. But Friedman's philosophy still lingers in a lot of companies in corporate deals today. Perhaps nowhere more pronounced than with Brazilian private investment group, 3G Capital, and its takeover of two great American food brands, first Heinz, and then Kraft. It squeezed out some of the widest profit margins in the US food industry. That is until the 3G way of business started to lose its shine.

In this episode, we're talking about ketchup, pickles, and mac and cheese, and the cost of deal making for a brand and the people behind it.

James Fontantella-Khan (02:53):

What I really found interesting, it it, it brought together a number of elements that in many ways made it the perfect Financial Times story, the global aspect. So you have a Brazilian investment firm, you have the, the icon of American capitalism. You have iconic American brands that are consumed by everywhere, everybody around the world. In many way, it's the American soft power, like ketchup probably has done more to expand American values than than any president has.

Aimee Keane (03:27):

Heinz is one of those iconic American brands.

News_archive (03:35):

Pickle lovers always insist on a proud pickle. Heinz: The way no other pickle does. Crisp, full bodied….

News_archive (03:44):

Households every day. Pick up tin of beans and say beans means heinz……

News_archive (03:49):

When will Johnny be back from going around the world?

Aimee Keane (03:52):

What started in the 1860s after the Civil War as Henry John Heinz’ horseradish bottling company, became the brand synonymous with one of America's favorite condiments,

News_archive (04:03):

Heinz ketchup!

Oh, you noticed our Heinz. Here, taste it!

Aimee Keane (04:14):

And as ad man Don Draper put it, Heinz was the essential ingredient in staple American meals.

Don_Draper/Madmen (04:21):

It's clean, it's simple, and it's tantalizingly incomplete. What's missing? One thing, pass the Heinz… You mean the Heinz ketchup? It's Heinz. It only means one thing.

Aimee Keane (04:39):

Fast forward to 2008, more than a hundred years after its founding, and Heinz was a multinational company doing 10 billion in annual sales. But by 2012, Heinz profits are under pressure. Expenses are up, as our prices on some of the rot ingredients that go into its products.

James Fontantella-Khan (04:58):

It had lost its mojo in many ways, in the sense that the products were a bit stale.

Aimee Keane (05:04):

That's James again, in his role at the FT, he's been covering deals and deal makers in the US for the last eight years.

James Fontantella-Khan (05:11):

A lot of these companies were run in a very inefficient way, like you had executives paying themselves huge bonuses. If you looked at it from a Wall Street investor perspective, they were very badly around companies with executives who didn't really care much about growing the brands. They just relied on these effectively fairly well known brands.

Aimee Keane (05:38):

This is where the private investment group, 3G Capital gets interested.

James Fontantella-Khan (05:43):

They and other private equity firms found these consumer groups appetizing for the simple reason that they, this, there was a lot of fat that they could, could cut. Effectively squeezes a good return out of these companies.

Aimee Keane (05:56):

Private equity groups typically buy a company where they see efficiencies or ways to cut costs and then generate higher profits, and then they'll usually sell the company. 3G Capital on the other hand, likes to refer to itself as private investment. And for them, the distinction comes down to how long they hold on to these companies.

James Fontantella-Khan (06:16):

So the one thing that you need to know about 3G, they never just buy one company to kind of fix it and flip it, which is the most, what usually private equity firms do. And the idea is it becomes proof of concept. Like we, we take over the company, we cut the fat, we turn it into the star in the industry. And the best way to do that often is precisely to take it off the public market. And by removing yourself from the market, you can actually do some of those tough decisions that are just easier to, to carry out when, when you're not public.

Aimee Keane (06:52):

James, let's take a step back for a second and look at the origin story of 3G Capital. How does the private investment firm come to be?

James Fontantella-Khan (07:01):

You have Jorge Paulo Lemann, who is very much kind of the man behind 3G.

Aimee Keane (07:09):

Lemann was born in 1939 in Rio de Janeiro, but both of his parents had ties to Switzerland.

James Fontantella-Khan (07:15):

He's definitely an extremely private person. What we do know is he is a former, uh, professional tennis player. He's an old, old world kind of financeer, not flashy, who has cultivated incredible contacts with some of the wealthiest families around the globe.

Aimee Keane (07:34):

He worked at Credit Suisse and Geneva and a few other lenders. And then in 1971 with two business partners, he started his own investment firm. It was called Banco Garantia.

James Fontantella-Khan (07:46):

Many people kind of say he was the Goldman of Brazil.

Aimee Keane (07:50):

The firm was acquired by Credit Suisse in 1998, and then Lemann made his next move. He and his partner started building a portfolio of investments as 3G Capital, which stood for the 3 Brazilians who once owned Garantia.

Lemann and Co had acquired the Brazilian beer company Brahma a few years earlier. And they used it to buy more beer brands. Here's how it went. Brahma acquired rival Antarctica to create Ambev. Then in 2004, Ambev acquired Interbrew and created the world's largest beer company. It was called InBev. And then in 2008, InBev bought Anheuser-Busch creating the beer giant AB InBev

James Fontantella-Khan (08:34):

That kind of turns them in the span of very few years into the largest beer company on the planet. <laugh>. Effectively, every time you walk into a deli or a supermarket, pretty much in the beer area, like probably more than 50% of the beers you see on the shelf are owned by a 3G backed mm-hmm. <affirmative> beer company.

Aimee Keane (09:00):

As 3G built its empire, the investment group became known as one of the best at running consumer companies.

James Fontantella-Khan (09:06):

The CEO of that company for the longest time was Carlos Brito, who was handpicked by 3G and really kind of installed the 3G way in the way that the beer companies were run.

Aimee Keane (09:25):

The 3G way. This was a management approach that went far beyond beer.

James Fontantella-Khan (09:30):

The lean and mean, so to speak, method is also known as the zero based budgeting.

Aimee Keane (09:36):

Isn't that a thrilling line?

James Fontantella-Khan (09:38):

<laugh>? Yes. And it, it, it's kind of revolutionary in many ways in the sense of, they effectively get rid of everything which is in excess.

Aimee Keane (09:47):

And by everything we're talking about everything. Individual people, entire departments, buildings, right down to office supplies, all driven by this idea called zero based budgeting.

James Fontantella-Khan (10:01):

The zero based budgeting method is like, you don't have a budget. Like the idea is like, you want something, you'd need to make a case for it.

Aimee Keane (10:08):

Another aspect of the 3G way is strict control over its people.

James Fontantella-Khan (10:13):

Your performance is measured in ways that, in fairness, very few other companies ever did. And, and critics say it's, it's slightly kind of, it's anxiety driving like it, it caused a lot of fear into people.

From 3G's perspective. It's just like they'd say that they believe in ruthless meritocracy. In many ways, they kind of represent the opposite of everything. You'd think about Brazil, which is about color, it's about joy. It's, it's much more Swiss. If you want <laugh> again, I I'm probably gonna get, um, criticized for stereo making stereotypes of people. But as, as a lover of of Brazil, I think I'd celebrate it's kind of a sense of joy. Yeah, I think Lemann doesn't really transmit a sense of joy. It's, it's that sense of like nearly monastery kind of austerity. And again, it's like this is one of the richest human beings on the planet.

Aimee Keane (11:08):

So in the fall of 2012, as Heinz profit margins are coming under pressure, Lemann and 3G set their sights on the food company. They'll take over cut costs and use it to roll up other notable consumer companies. 3G has a method and a plan, but it doesn't have the cash or the name recognition in the US. So it turns to who it thinks is the ideal partner.

News_clip (11:33):

Joining us right now on the Squawk News line is Warren Buffett, of course, the chairman and CEO of Berkshire Hathaway. Warren, thank you for calling in this morning…..

James Fontantella-Khan (11:40):

They found somebody that would help them sell the idea of we're buying this kind of company, which is like really kind of in the heart and souls of, of many Americans. But along us, you know, don't be scared, we're, we're friendly. We also have Warren Buffet with us. And so that, that kind of, I think helped a lot reassuring people these Brazilians were to be trusted.

Warren_Buffet (12:01):

Uh, Jorge Paulo Lemann, who runs 3G talked to me about, uh, early December we were on a plane together and, uh, I've got a file on Heinz that goes back to 1980, but he is the one that, uh, got me going on this in early December…..

James Fontantella-Khan (12:17):

So at the heart of the relationship between Buffet and Lemann is a shared view that they want to pick the best management teams to run companies. So he saw in in Lemann a partner that he could trust that had the same philosophy. And the other thing that Buffet loves, which is also kind of loved by the 3G folks, is precisely investing in well known consumer brands and brands that kind of resonate with the public.

Warren_Buffet (12:49):

You know, it's our kind of company. It's got a, it's got a, uh, a group of fantastic brands led by ketchup. And you know, it's, the company started in 1869 with horseradish.

Aimee Keane (12:58):

The deals officially announced on Valentine's Day of 2013. Here's the then CEO of Heinz. William Johnson.

News_clip (13:06):

Heinz has entered into a definitive agreement to be acquired by an investment group led by Berkshire Hathaway and 3G Capital. Upon closing in this unprecedented transaction, Heinz will become a private enterprise. At 28 billion dollars, this will be the largest acquisition that any company in the history of the food business,

Aimee Keane (13:24):

Both Berkshire Hathaway and 3G invest in the deal. But Buffet puts up some extra money to finance the takeover. Meanwhile, 3G takes over operations, and once the deal closes quickly gets to work putting its mark on Heinz.

James Fontantella-Khan (13:41):

So the first few things is change the management, kind of put their own people in in charge.

Aimee Keane (13:48):

And then it's time to clean up operations.

James Fontantella-Khan (13:50):

The number one focus is how do we boost margins? And often it's by shedding products that are not really popular anymore, closing down factories that are not really as productive as they should be. So there's a really aggressive focus on seeking so-called efficiencies.

Aimee Keane (14:12):

There's that word, efficiencies, again. The great business jargon that's usually code for cost cutting in order to boost margins. It goes all the way back to Milton Friedman's idea of shareholder primacy. And it's a big part of this 3G method of running companies.

James Fontantella-Khan (14:28):

In their case, they're preparing the company to then become the blueprint to buy the next company. And that's kind of what they were good at. What they kind of knew is also to be successful in any sector, you need scale.


And so the idea is, immediately after they complete that deal, they have a group of people, again, mostly very young analysts in New York, scouting for the next asset. They're looking for the kind of brands that are, they think are successful, or some brands that they think that they can turn around by boosting their margins effectively wherever they, they'll be spending a lot of time doing a lot of research, looking at like if studying the number of trucks they're going in and out of a, of a factory, looking at like the quality of the products, how they're packet like, there, there's a, it's a very meticulous kind of analysis. And then, and then a lot of financial analysis. Like there's, they're great financial engineers. That's part of what they do. That's kind of their special sauce.

Aimee Keane (15:35):

Mm-hmm. <affirmative> Tell us what they land on?

James Fontantella-Khan (15:37):

They land on Kraft

News_clip (15:42):

Kraft foods and Heinz tying the Knot. Kraft foods and HJ Heinz have agreed to a merger.

News_clip (15:48):

I mean, you think about your refrigerator, everything from Oscar Meyer Heinz, Philadelphia now all in one company. Yeah. It's amazing. And the brands are iconic American brands, which…

News_clip (15:59):

They include products like Maxwell House Coffee, the Velveeta Cheese range…..

News_clip (16:04):

They say they will create the third largest food and beverage company in North America…….

News_clip (16:10):

And the man putting the icing on this mega merger? Well, none other than legendary investor. Warren Buffett.

Aimee Keane (16:17):

Buffett and his partners at 3G Capital all told through Heinz, the two investors pickup Kraft at a value of nearly 63 billion dollars.

James Fontantella-Khan (16:30):

For a private capital firm to pull off a 60 plus billion dollar deal. That's kind of insane. None of these deals would've happened without Buffet. I think that's a kind of important to understand that Buffet was instrumental both from a point of kind of legitimacy and kind of bringing that kind of cache that the Buffet has, but also in the sense of bringing the cash

Aimee Keane (16:57):

Yeah, The, the cache and the cash. Yes.

This deals announced in 2015 and after it closes, 3G once again gets to work trimming the excess it sees at Kraft. The combined company only needs one CEO and they install one of their own guys, Bernardo Hess. In the top job, there are other cuts to be made too. For example, two HR teams can become one. Fewer factories are needed to make the products. That means job cuts, buildings shut down.

James Fontantella-Khan (17:25):

The idea is like do not waste. And in, in a nearly kind of, in a religious way, without interfering on any particular religion, but like the idea of waste was seen as sinful

Aimee Keane (17:38):

From the time 3G takes over Heinz and later Kraft up until 2017, a fifth of the workers are laid off and seven plants are shut. This translates into huge profits for the company and its investors.

James Fontantella-Khan (17:53):

They had the highest margin than any other consumer company by a lot.

Aimee Keane (17:57):

And what, how did investors react to that?

James Fontantella-Khan (17:59):

Investors love that. I mean, that it, it was by far the darling of the investor community. Everybody wanted, like, if you were invested in another consumer company, they'd tell you like, you need to copy those guys.

Aimee Keane (18:11):

Mm-hmm. <affirmative>. So if we go back to the model that you explained, 3G brings to its platforms, it started with Heinz, then it picks up Kraft, I think listeners paying attention, we will know that maybe there's another company out there they're gonna try to add to this platform. Can you tell us what they tried to go after next and what happened?

James Fontantella-Khan (18:33):

So the next big target for the now newly formed Kraft Heinz is Unilever. It's a shocker….

Aimee Keane (18:42):

At the time, Unilever is one of the largest consumer goods companies in the world with a radically different corporate culture than 3G brought to its companies. So when the Kraft Heinz CEO, a 3G guy approaches the Anglo Dutch group, it ruffles more than a few feathers.

James Fontantella-Khan (18:59):

What happens in that split moment is you start seeing some cracks.

Aimee Keane (19:05):

We'll be back after the break.

We're back to our conversation with James Fontantella-Khan from the Financial Times. James and his team break the news that Kraft Heinz is pursuing Unilever.

News_clip (19:24):

Kraft Heinz is hungry for a deal. A big one won worth more than 140 billion dollars. The food conglomerate backed by billionaire Warren Buffet in the Brazilian private equity firm 3G made a takeover offer for Unilever in what would be one of the biggest deals ever. But Unilever said, hold the Mayo!

James Fontantella-Khan (19:43):

From a kind of cultural perspective there, they were two very different kind of companies. Unilever embodied, under its then Chief Executive, a lot of the values that you have of kind of being a more gentle form of capitalism. Which is kind of perfect for 3G in many ways because they could see a lot of fat and stuff that they could do to kind of improve the company. When the FT revealed that like Unilever was 3G's next target, it kind of shocked everybody.

We kind of probably killed the deal. They were really not okay with 3G taking them over

Aimee Keane (20:24):

3G's ambitions to take over Unilever, start to look like a hostile bid. And as the name suggests, a hostile bid or a hostile takeover can turn into a battle pretty fast.

It may start with a friendly meeting where the acquiring company makes an informal offer to the target company, but if the board and management say no, this is where it can turn hostile. The acquiring company, in this case, Kraft Heinz could go right to the shareholders and present their offer. Then it's up to the investors.

James Fontantella-Khan (20:59):

And so you have a pretty ugly but brief public debate about should these evil kind of cost cutting investors come and take the kind of the lovey dovey Unilever and this kind of European kind of consumer champion.

And obviously the story isn't that, you know, I think we shouldn't over exaggerate that Unilevers, this kind of angel and the the 3G or, or the bad guys. It, it just didn't work. I think in hindsight, it was in the best interest of both companies that that deal didn't go through. Unilever, That it was 147 billion dollar deal. I mean, that's gigantic.

Aimee Keane (21:43):

Kraft Heinz never does launch a full formal hostile bid for Unilever. It agrees to withdraw its bid shortly after James' story breaks.

James Fontantella-Khan (21:52):

It was incredibly embarrassing, I think, for 3G. They're not used to failing.

Aimee Keane (21:57):

And was this embarrassing for Lemann?

James Fontantella-Khan (22:01):

We don't know that for sure, but according to people we spoke to at the time, yes, he, he was not happy. But what made it more painful and more embarrassing was that Warren Buffett came out saying that he was not okay with a hostile bid.

Aimee Keane (22:17):

This is based on James' reporting, and he says it spells the beginning of the end of the warm relationship between 3G and Berkshire Hathaway. Do you

Speaker 16 (22:27):

Do you fundamentally disagree with the combative nature of hostile bids?

Warren Buffett (22:30):

I don't think it's evil or anything to conduct a hostile offer for a company. It's just we won't do it.

Aimee Keane (22:37):

What did you, what did you make of Buffett's reaction?

James Fontantella-Khan (22:41):

So Warren Buffett, who again, is embodies an old school form of capitalism, he only does friendly deals. He's not, he's not a bit bearing at the gates kind of a, uh, kind of guy, as often kind of private equity folks are, are referred to.

One wonders whether that was a convenient move by Buffett. I mean, he was on the board at the time, so did he really not know that this was going on? Maybe. Buffett cares a lot about his image. He's a shrewd investor.

Aimee Keane (23:13):

The failed attempt for Unilever happens in February of 2017, and it kicks off a series of difficult moments for 3G. To start the same quarter that the Unilever deal fails Kraft Heinz earnings, miss investor's expectations and the share price falls. Then, the following year in 2018, Buffet announces he's stepping down from the Kraft Heinz board.

News_clip (23:37):

We do have some breaking news on Warren Buffet this morning.

He is denying reports of tensions between him and 3G Capital, which is the company's partner in Kraft Heinz. Buffet said 3G co-founder Jorge Paulo Lemann is a good friend and said that he plans to see Lemann next month at Allen and Company's Sun Valley conference. These reports have been out about tensions between them, but Buffet also expressed support for the incoming CEO…..

Aimee Keane (23:59):

Just a couple months later, another crack in the 3G armor.

James Fontantella-Khan (24:03):

So we're in 2018, we're at the milking conference in LA, which is kind of the, the Davos on, on the west coast of America.

Aimee Keane (24:11):

It's a big conference for people who invest private money, private equity, private credit, family offices.

James Fontantella-Khan (24:17):

Like if you wanna know what Wall Street is thinking, that's where they kind of decamp for a week or so.

Aimee Keane (24:24):

And it's run by none other than Michael Milken, who's perhaps best known for being indicted for violating US securities laws during the junk bond boom of the eighties and later being granted clemency by Donald Trump.

James Fontantella-Khan (24:36):

Since then, Milken has kind of refashioned himself as this conveyor of great minds, uh, in the world of finance. So the people you meet, they are mainly male, mainly white, financiers.

Aimee Keane (24:49):

Jorge Paulo, Lemann is there for a rare public appearance

Speaker 17 (24:53):

In beer, we have the… new kinds of beers coming in all over……

Aimee Keane (24:57):

He's on a panel discussing leadership in the age of disruption.

Panel moderator (25:01):

Jorge, I'd like to turn to you if I, if I could please. The industries that you have invested in that I'm most familiar with are our old line consumer focused industry's, um, beer…..

James Fontantella-Khan (25:11):

It's a moment and he comes out with this line where he says he admits fundamentally that he's not perfect and more importantly, like he's not infallible. Like something that investors had, uh, really looked up to him for so long. And he says….

Jorge Paulo Lemann (25:31):

I’m a terrified dinosaur.

James Fontantella-Khan (25:33):

I'm a terrified dinosaur. <laugh>,

Jorge Paulo Lemann (25:35):

Especially after attending this meeting. I went to a food meeting yesterday and all they talked about was new products and new forms of producing food and I go to the next meeting is our artificial……

James Fontantella-Khan (25:47):

Effectively what he admits is that he was the one that was disrupted. Like he kind of had failed to see where the world was changing. To some extent, you could, you could argue that buying Unilever was a way to address some of the things that were changing in the world. That the fact that you had to invest a bit more in your brands, the fact that you had to kind of think about the, the broader kind of environmental, social and governmental impact of, of what your companies did and just kind of being more attuned to what was going on in society.

Aimee Keane (26:25):

Mm-hmm. <affirmative>, was that surprising?

James Fontantella-Khan (26:26):

It definitely was surprising when you don't speak that often, every word that you then say publicly counts. And this was it, it was kind of humbling to be honest. It kind of proved that somebody had been incredibly successful for so long was admitting that they needed to change. And following the failed acquisition of, of Unilever, Kraft Heinz goes through a pretty tough spell. Mm-hmm. <affirmative>. It's, uh, it's struggling. For the first time the, the, the masters of turning around consumer companies are not doing that great.

Aimee Keane (27:03):

Then, the following year, Kraft Heinz leadership has some bad news to share with investors

Conference call speaker (27:09):

At this time. I would like to welcome everyone to the Kraft Heinz Company's fourth quarter 2018 earnings conference call.

James Fontantella-Khan (27:16):

I think it's the trifecta of, of bad news. They had a write down, I think it was like effectively they wrote down their deal. It was a 15 billion writedown, an accounting scandal, and they had to cut their dividend. So it's like Armageddon.

Aimee Keane (27:33):

An analyst from JP Morgan's on the call and he sums it up like this.

Speaker 20 (27:37):

So when investors are looking at, you know, the consistent financial disappointments at Kraft, and if they ask why, you know, if a 3G belt tightening strategy goes too far and if it damages brands, is it at least some evidence starting to point to Yes there, I'm just curious for your thoughts on that.

Aimee Keane (27:53):

To which CEO Bernardo Hess says….

Speaker 21 (27:56):

Look, we, we still, we still believe in and is strongly that, that, that our model is, is working and has a lot potential for the future, right?

Aimee Keane (28:05):

But it's not enough to calm investors. The stock drops again.

James Fontantella-Khan (28:10):

And then I think a few days later, Buffett comes out to kinda the cherry on top of it all saying that, you know, he thinks he's overpaid for, uh, the acquisition of Kraft.

Warren Buffett (28:22):

I was wrong in a couple ways on Kraft Heinz and then we, we overpaid for, we overpaid for Kraft and, and we wrote down 15 billion of that…

James Fontantella-Khan (28:33):

Buffett telling the market that he had overpaid was pretty damaging for 3G because, you know, remember back in 2010, they're really seen as the best guys at operating a consumer group. You might not like their ways, you might think they're too brutal, this and that, but they're good. They're really good at what they do. And fast forward to 2019, that shine has just come off.

I think that was probably the lowest point for, for 3G after having had a pretty phenomenal run. And it kind of forced the company to reconsider some of the, the kind of its mantras.

Aimee Keane (29:19):

This starts with a new CEO at Kraft Heines. 3G puts the former AB InBev chief marketing officer in the top job. His name's Miguel Patricio.

James Fontantella-Khan (29:28):

Patricio kind of really pivots the company on innovation, on kind of being more of a global brand, a fresher brand, a more modern brand. They shed a lot of assets that again, are really kind of core to, to the brand. What weirdly helped them a lot was the pandemic. In many ways.

Aimee Keane (29:48):

COVID, lockdowns and quarantines mean that dry packaged foods that could last a long time are all of a sudden in high demand. At one point in 2020 Kraft Heinz quarterly sales increase more than they had since the two companies were combined.

James Fontantella-Khan (30:03):

It might sound cheesy, but like mac and cheese became, who cares about putting on a few kilos?

Aimee Keane

Its comfort.

James Fontantella-Khan

it was comfort food. Yeah. Yeah.

Aimee Keane (30:11):

The pandemic offers a boost to the bottom line. But investors' appetite for Kraft Heinz today is nowhere near where it was just a few years ago. The stock is a fraction of the value. It was when the companies merged. Meanwhile, Lemann, who's now in his eighties, has stepped down from the board. As for these iconic American brands themselves….

James Fontantella-Khan (30:32):

They were truly global. If you grew up in San Martino Siccomario, like about an hour from Milan as I did in a small village, you still found ketchup. You still found Kraft. Like, you know, these are, you know, we had the Italian words for those products and like, so yeah, these were like global, phenomenally global brands. And I think the question was, consumers globally have changed. And the lesson there is like if you, you need to be capable of pivoting constantly. Everybody always talked about a playbook. There is no playbook. There is a constant like shifting of, of taste.

Aimee Keane (31:13):

There's changing consumer taste for the products, but it's not just about the product. It's also about the way these brands and companies are managed. When a group like 3G Capital takes over.

James Fontantella-Khan (31:24):

The company doesn't take care of the people, the company takes care of shareholders who own the company. And so the basic idea behind that is the company needs to do everything possible to maximize profit. If that means shutting down a plant, you shut down the plant.

Aimee Keane (31:45):

This takes us back to Allentown, Pennsylvania, where Kraft Heinz shut down one of its plants after the merger. And to Rod Miller, who James caught up with. Rod told James that he and other workers were already facing fewer shifts and layoffs before news of the deal.

James Fontantella-Khan (32:01):

It was an industry in crisis.

Aimee Keane (32:03):

But when Rod and his fellow workers heard about the deal and that Warren Buffet was part of it, they thought it would be good news for their jobs.

James Fontantella-Khan (32:11):

They thought, oh, Warren Buffet is gonna come in. He's gonna save us. It turned out not to be like that. It turned out that Warren Buffett is a very good capitalist and like any good capitalist wants to make money. And if it comes at cutting jobs, he will go down that route. And I think that's what kind of touched me the most was the fact that like Rod was at the end of his kind of career and the felt, he felt like he, he had stripped of his dignity in many ways and, but he felt like, now the final years of my life, I'm gonna be doing some shitty job.


And this is not about blaming 3G or it's the, the capitalist society we we live in. And, and the impact it has on the lives of people like, like Rob Miller, who, who got laid off at that plant. And the conflict here is like, these guys are really good at making money, but the cost of their success is coming to the expense of somebody else. And so how do you reconcile that? And in hindsight, I feel like again, what is our role as journalist, you tell the story, you try not to take aside, you try to just expose the conflict so that it becomes clearer to people. And I think did that story change the course of like, the debate around kind of maximizing shareholder value? Absolutely not. But was it a little kind of chip at the idea that like, shareholder value maximization is the ultimate religion that we should live by? I think it did chip it, it contributed to a broader discussion about what kind of capitalism do we want? Do we want the most rapacious one or do we want a capitalist society where actually more people are brought, are lifted out of a situation or maybe have the chance to move up in, in life. And so that is the, the reason why I thought what appeared just as a simple A buys B kind of story had much more to it for the, the very nature of the actors involved.

Aimee Keane (34:21):

That's it for this week. Thanks for listening. If you like this episode, would you please leave us a review on Apple Podcasts or better yet, share the show with someone who might enjoy it and hit that subscribe button so you'll know every time we have a new episode. We've been asking you to send us your best deal stories and now we have a new question for you. What's the most underrated deal in M&A history? Maybe it's one you followed really closely that's been forgotten in the last few years, or maybe it just didn't get much coverage at the time. You know how this works. Send us a voice memo with your first name and where you're from. And then in just a few sentences, tell us what the deal was and why you think it matters. You can email your audio file to


We'll review all the submissions and we just might play yours on a future episode. Now, if you want more from The Closer, we have the newsletter for you, go to to sign up. It's written by journalist and Closer producer Ben Walsh and it's witty, informative, and the place where he's gonna dive into the mechanics of M&A and analyze deals in the news. You'll get a chance to see show notes from each episode and much more from our team. So just sign up at closer .fm and if all of this isn't enough, you can also become a Brazen Plus subscriber on Apple Podcasts for exclusive access to extended interviews and other bonus material from the show.


The Closer is a production of Project Brazen in partnership with PRX. Our show is produced by Isabelle Kerby-McGowan and Ben Walsh. Siddhartha Mahanta is our editor. Mariangel Gonzalez is our project manager, and Lucy Woods is our fact checker and head of research. Golda Arthur is our showrunner. And Bradley Hope and Tom Wright are executive producers at Project Brazen. Francesca Gilardi Quadrio Curzio, and Nour Abdel Latif are podcast strategists. Megan Dean is programming manager. And Ryan Ho is Design Lead. Thanks to Eric Gomez for audio engineering and sound design. Our composer is Alex García Amat.

I'm Aimee Keane. Thanks for listening.