Heinz merger spells accelerated job losses for Kraft workers

Workers at Kraft Foods Group can anticipate substantial job losses following the March 25 announcement of a merger with Heinz to create the fifth-largest global food company: Kraft Heinz. Two years ago, Warren Buffett's Berkshire Hathaway teamed up with the Brazil-based 3G Capital in a leveraged buyout of Heinz. In the first 20 months under new ownership, Heinz eliminated 7,400 jobs worldwide - 23 percent of the global workforce - through closures, restructuring and casualization.

The merger will see Heinz hold 51 percent of the new company, with Kraft shareholders owning 49 percent. The financial details will never be fully disclosed due to Heinz's private ownership, but according to the Financial Times, the deal involves USD 28 billion in debt - just short of the combined companies' annual sales revenue.

The link up with Heinz gives Kraft the global springboard it lost when the former Kraft Foods Inc split into two entities, North American Kraft Foods Group and global snacks company Mondelez. But the split gave Mondelez the brands with greatest international growth potential. Kraft's products have limited appeal outside of North America, and sales have been slipping in the home market.

"Every time you put two major public companies together, there are natural synergies and efficiency opportunities associated with that," said Alex Behring, Heinz chairman and managing partner at 3G Capital, who will become CEO of the new company when the deal is approved by Kraft shareholders and regulatory authorities later this year. The merger will give the combined companies added bargaining power with both retailers and suppliers, but the biggest "synergy" in the projected USD 1.5 billion in cost savings will of course be job cuts.

3G built a Brazilian brewer into global giant AB InBev through ruthless cost-cutting, and accomplished the seemingly impossible by wringing even more cash out of Burger King when they took over from earlier private equity owners. Heinz had been steadily cutting jobs and raising dividends to please financial markets before the 2013 buyout. Under 3G, the process went into overdrive.

How many job cuts does it take to deliver USD 1.5 billion in annual savings? Workers should be prepared for difficult bargaining with tough new bosses.