The History of Kraft Heinz

The story begins with the rise of Kraft. James L. Kraft founded the company in 1903, and he invented pasteurized cheese in 1915. But James L. Kraft didn’t start the Kraft we know today.

In 1930, Kraft, was bought-out by a giant, National Dairy Products, but as National Dairy expanded, Kraft became a more integral piece. By 1969, investors changed the name of the company from National Dairy Products to Kraftco Corp as most of the company's products were no longer milk related.

Fast forward to the 1980's, one of the largest companies, Philip Morris, the largest tobacco company, decided to expand its food empire. Just In 1985, it bought General Foods who made products such as Jell-O, and, in 1989, Philip Morris bought Kraft for $13.5 B.

For the next two decades, Kraft was owned by the tobacco giant. But in 2001, Philip Morris put 16% of its Kraft shares for sale through an initial public offering (IPO), and in 2007, it exited the position entirely.

Once independent, Kraft started to show revenue growth after stagnating for nearly 20 years. In 2008, It was included in the Dow Jones Industrial Average, one of the most prestigious indexes in the world, for the first time as an independent company.

However, Kraft then fought with its largest investor, Warren Buffett. After owning General Foods in the 1980’s, Buffett re-entered Kraft after the smoking giant Philip Morris exited in 2007. However, Buffett exited the position in 2012 at a small loss because of his disdain for Kraft’s 2010 purchase of Cadbury. However, he has kept his position in Kraft’s sister company Mondelez—as of August 2019.

In 2011, Irene Rosenfeld, the CEO of Kraft, decided to split the company into two pieces: Kraft and Mondelez. Mondelez is a mashup of two words, Monde meaning world, and Delez meaning delicious. The two firms starting trading separately, on October 2, 2015 and both had initial success.

The new Kraft focused on its weaknesses, low advertising expenses and research and development. In 2013, Kraft had several successful product introductions.

However, Philip Morris, in another form, re-entered the stock this time as 3G Capital run in part by Jorge Paulo Lemann and Berkshire Hathaway run by legendary investors Warren Buffett. Investors were initially excited, but the two legendary companies made some notable mistakes when they purchased Kraft Heinz:

1) It used a very levered structure
2) It made the investment as consumer tastes were changing
3) It underinvested in the business
4) It hired a CFO who had little experience

Where does Kraft Heinz go from here? Unfortunately, Kraft Heinz has very high debt, and its credit rating was downgraded in August 2019; this will make it difficult for Kraft Heinz to make the necessary interest payments and principal payments. The company is now financially distressed and could head into bankruptcy protection.

The issues were brought upon by changing trends and mistakes by these two legendary investors.

I hope you enjoyed the video, let us know in the comments what you felt was the biggest mistake.

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