3G Capital, a Brazilian private equity firm, has quietly sold off its 16.1% stake in Kraft Heinz in the fourth quarter of 2020, marking the end of an era for the firm. 3G’s influence over Kraft Heinz had been diminishing in recent years, with its number of board seats decreasing from three to none by July 2022.
According to a statement from Kraft Heinz, 3G had not been involved in the management of the company or on the Board for several years. The firm had continued to be an investor but recently exited its entire stock in Kraft Heinz in 2023. Berkshire Hathaway, led by Warren Buffett, remains the largest shareholder with a 26.8% stake and is committed to long-term ownership.
The relationship between Berkshire Hathaway and 3G Capital began in 2013 when the two firms announced their partnership to take Heinz private. The merger with Kraft Foods followed two years later. Initially, the new company pleased investors with its earnings growth, thanks to 3G’s cost-cutting approach. The firm had already experienced success with this strategy through previous mergers, such as creating Anheuser-Busch InBev and revitalizing Burger King.
However, the packaged food industry presented new challenges for Kraft Heinz. Consumers were shifting towards fresh food, and private-label brands and healthier options were gaining popularity. Kraft Heinz attempted to drive growth through a takeover bid for Unilever, but the offer was rejected. The company then faced a disastrous quarter in 2019, cutting its dividend, disclosing an SEC investigation into its accounting practices, and writing down its brands by $15 billion.
Buffett later admitted that Berkshire and 3G overpaid for Kraft Heinz, influenced by an optimistic view of the brands’ value. Despite the setbacks, both Buffett and 3G stood by the company. However, other investors blamed 3G’s aggressive cost-cutting for the company’s troubles.
To reverse the downward spiral, 3G handpicked a new CEO for Kraft Heinz, an AB InBev veteran, and the company entered a turnaround mode. It announced plans to increase marketing and advertising spending and shift its product strategy. To reduce competition from private-label brands, Kraft Heinz sold its cheese business to Lactalis and its Planters nuts brand to Hormel.
In 2021 and 2022, 3G’s founding partners began stepping down from Kraft Heinz’s board. Jorge Paulo Lemann, followed by Alexandre Behring, left their positions. Finally, Joao Castro-Neves, the last remaining 3G board member and former AB InBev CEO, also stepped down.
Since 2018, 3G had been gradually reducing its stake in Kraft Heinz. The sale of 25 million shares in 2019, during the company’s troubled period, caused a 4% drop in the stock price. In 2022, 3G distributed around 7% of Kraft Heinz to investors in its fund, which reportedly included tennis star Roger Federer.
Last year, Kraft Heinz appointed Carlos Abrams-Rivera as its new CEO. Notably, he is the company’s first CEO without ties to 3G.
The exit of 3G Capital from Kraft Heinz marks the end of a significant chapter for both entities. As Kraft Heinz moves forward with a new CEO and strategy, it will be interesting to see how the company navigates the challenges of the changing food industry landscape and works to regain investor confidence.
