Brazilian private equity firm 3G Capital recently made headlines by selling off its 16.1% stake in Kraft Heinz, marking the end of an era for the firm. 3G’s influence over Kraft Heinz had been dwindling in recent years, with the number of board seats slipping from three to zero by July 2022. Although 3G had not been actively involved in the management of Kraft Heinz for some time, its role as an investor was significant.
The Beginning of the End
The partnership between 3G Capital and Kraft Heinz began with the merger of Kraft Foods and Heinz, which was masterminded by Warren Buffett nearly nine years ago. This merger initially pleased investors with its earnings growth, thanks to 3G’s cost-cutting approach. However, as consumers shifted towards fresher food options and private-label brands gained popularity, Kraft Heinz began facing new challenges.
Kraft Heinz’s struggles came to a head in 2019 when the company slashed its dividend, revealed an SEC investigation, and wrote down its brands by $15 billion in a single earnings report. While Warren Buffett acknowledged that Berkshire and 3G overpaid for Kraft Heinz, he remained supportive of both parties. Other investors, however, pointed to 3G’s aggressive cost-cutting strategies as a factor in the company’s decline.
In an effort to reverse Kraft Heinz’s downward spiral, 3G handpicked a new CEO and the company entered into turnaround mode. Plans were announced to increase marketing and advertising spending, reevaluate product strategy, and reduce exposure to private-label competition. This included selling off the cheese business to Lactalis and the Planters nuts brand to Hormel.
In 2021, 3G founding partner Jorge Paulo Lemann stepped down from Kraft Heinz’s board, followed by fellow founding partner Alexandre Behring in the following year. The final board member, former AB InBev CEO Joao Castro-Neves, also stepped down shortly after Behring’s departure. These departures signaled the gradual disengagement of 3G from Kraft Heinz.
3G had been gradually reducing its stake in Kraft Heinz since 2018, with the most recent sale marking the complete exit from the company. The sale of 25 million shares in 2019 had led to a 4% drop in the stock price. In 2022, 3G distributed about 7% of Kraft Heinz to investors in its fund, including tennis star Roger Federer. Last year, Kraft Heinz appointed Carlos Abrams-Rivera as its new CEO, making him the first CEO without ties to 3G.
The sale of 3G Capital’s stake in Kraft Heinz signifies the end of an era for the Brazilian private equity firm’s involvement in the iconic food company. Despite the initial success of the merger between Kraft Foods and Heinz, changing consumer trends and aggressive cost-cutting strategies posed challenges for Kraft Heinz. The departure of 3G’s founding partners from Kraft Heinz’s board and the subsequent sale of its stake signal a definitive disengagement from the company. Kraft Heinz now enters a new chapter under the leadership of CEO Carlos Abrams-Rivera, as it continues its journey towards growth and innovation in the ever-evolving food industry.
Leave a Reply