The U.S.-based food processing giant and the Quebec government on Nov. 17 announced the expansion plan for the company’s Mont Royal plant, which today makes products such as KD Mac + Cheese, Philadelphia cream cheese, Renee’s dressings and Kraft peanut butter.

The new ketchup line is expected to start operating in late summer of 2021 and produce over 100 million pounds of Heinz ketchup for the Canadian market within its first two years, “as production ramps up.”

The expansion is expected to add about 30 jobs at Mont Royal and help maintain about 750 more, provincial Transport Minister Chantal Rouleau said in a release from investment agency Investissement Quebec International.

Heinz ketchup sold in Canada has been made at plants in the U.S. since 2014, shortly after the company said it would shut its processing plant at Leamington, Ont., southeast of Windsor. Kraft Heinz reached a deal the following summer to sell that plant to a consortium of Ontario investors operating as Highbury Canco.

Kraft Heinz today bills itself as Highbury Canco’s largest customer, using Leamington-grown tomatoes in Heinz tomato juice and canned beans and Classico pasta sauces, among other non-ketchup goods. Kraft Heinz also still runs a tomato seed operation out of Leamington, supplying most processing-grade Heinz tomato seeds used on farms in Eastern Canada and the eastern U.S.

But the provenance of Heinz ketchup sold in Canada since 2014 has been a sore spot for some consumers, who vowed on social media to seek out rival ketchups made at plants within Canada.

“Kraft Heinz Canada is pleased to partner with the Quebec government on this investment in bringing ketchup production back to Canada from the U.S.,” Bruno Keller, president for Kraft Heinz Canada, said Nov. 17 in the company’s release.

“Through our partnership with Quebec and increased efficiencies at our Mont Royal facility, it became possible to return this iconic product back to Canada for Canadians at this time.”

Other media outlets have quoted company representatives as saying the tomatoes feeding the Montreal plant will at first continue to come from U.S. farms with which the company has contracts, though more of those tomatoes may be sourced from Canada in the future.

The Montreal plant, Keller said, “has been an important part of the Quebec economy for over six decades, and we are delighted to be able to help feed more Canadians every day thanks to investments like this one.”

The Quebec government’s hand in the project is a $2 million loan from Investissement Quebec’s ESSOR program, which offers loans, loan guarantees or financial assistance to”substantial long-term development projects” carried out within Quebec involving eligible expenditures of at least $100,000.

“With this new production line, (Kraft Heinz) is taking concrete steps to ramp up local production and continue its growth here,” Stephane Paquet, CEO of Montreal economic development agency Montreal International, said in Investissement Quebec’s release.

“This decision is proof positive that foreign subsidies too have a role to play in promoting and expanding local sourcing.”

Heinz’s relationship with Canada dates back to 1909, when Henry Heinz picked Leamington as “the most suitable site” for a pickle packing plant, the first expansion of his company’s operations outside the U.S. — Glacier FarmMedia Network

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Kraft had made a surprise offer for Unilever to build a global consumer goods behemoth — an offer flatly rejected on Friday by London- and Rotterdam-based Unilever, whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise.

Kraft withdrew its offer because it felt it was too difficult to negotiate a deal following the public disclosure of its bid so soon after its approach to Unilever, according to people familiar with the matter who requested anonymity to discuss confidential deliberations.

Kraft had not expected to encounter the resistance it received from Unilever, one of the people said. Some key concerns raised during talks included potential U.K. government scrutiny, as well as differences between the companies’ cultures and business models, the person added.

“Kraft Heinz’s interest was made public at an extremely early stage,” Kraft Heinz spokesman Michael Mullen said in a statement. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”

Kraft was forced to publicly disclose its offer on Friday to comply with Britain’s takeover regulations, after rumours of its approach to Unilever circulated among stock traders.

Under U.K. takeover rules, Kraft’s public withdrawal of its offer precludes it from reviving takeover talks with Unilever for six months.

A combination would be the third-biggest takeover in history and the largest acquisition of a U.K.-based company, according to Thomson Reuters data. The combined entity would have US$82 billion in sales.

The premature exposure of Kraft’s bid left the aggressive acquisition machine scrambling to craft an appetizing message for shareholders, the press, Unilever’s rank and file, and British and Dutch leaders.

Prime Minister Theresa May ordered top officials to investigate if the proposed deal posed potential threats to British economic interests, the Financial Times reported.

May has been adamant the government should be more active in vetting proposed foreign acquisitions of U.K. companies. She had previously singled out Kraft’s 2010 acquisition of another British household name, Cadbury, as an example of a deal that should have been blocked.

A deal for Unilever would have marked the next instalment of Brazilian private equity firm 3G Capital Management’s longstanding strategy of buying food companies and slashing costs.

In 2013, 3G teamed up with billionaire investor Warren Buffett to acquire Heinz and then purchased Kraft two years later. It is now the second-largest shareholder in Kraft, behind Buffett’s Berkshire Hathaway.

Unilever feared that a merger with Kraft, under 3G Capital’s relentless cost-cutting, risked eroding the value of its brands and could impede its expansion in emerging markets, which requires more investment, according to people familiar with the company’s thinking.

Unilever also saw its household products and consumer care divisions as too distinct from Kraft’s food business, the people added.

3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Kraft still hungry?

The breakdown in deal talks sparked speculation among analysts and investors about whether Kraft might attempt to purchase another large consumer goods company as a backup plan.

“We believe this announcement serves as a reminder — if needed — of (Kraft’s) interest, capacity, and commitment to pursuing large-scale M+A in a potentially near-term time horizon,” said Barclays analyst Andrew Lazar in a note.

Its bid for Unilever, where more than 60 per cent of sales come from home and personal care products, signals a willingness to make big buys outside of its historic area of focus — food — said Sanford Bernstein analyst Ali Dibadj.

He cited Colgate-Palmolive as one potential target, noting that its stock popped four per cent Friday on news that Kraft was eyeing Unilever.

However, the breakdown of the Unilever talks means that some food companies that have long been speculated as potential targets for Kraft, such as Mondelez, are still very much on the table, said an industry banker, who declined to be named because he was not authorized to speak to the press.

Low interest rates and cheap debt have fuelled big cross-border deals, marking the busiest start to the year for M+A activity on record. The bid also reflected a broader interest in UK companies as acquisition targets, in part due to the British pound, which has been under pressure since Britain announced plans to withdraw from the European Union.

Labour union representatives expressed relief that the deal talks broke down, citing concern about its potential effect on jobs and consumers.

“How many scares must the government put U.K. workers through before they actually do as they have promised, which is to make the takeover process socially responsible?” said Len McCluskey, general secretary at Unite, Britain’s largest union.

— Carl O’Donnell reports on mergers and acquisitions for Reuters from New York. Reporting for Reuters by Ismail Shakil in Bangalore, Pamela Barbaglia in London and Lauren Hirsch and Greg Roumeliotis in New York.

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3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Its investment approach has attracted backers ranging from billionaire investor Warren Buffett, who has helped bankroll all four major 3G deals, to celebrities such as supermodel Gisele Bundchen and tennis champion Roger Federer, who invested in 3G’s latest approximately $10 billion fund (all figures US$).

This relentless focus on costs, however, may end up making Kraft’s pursuit of Unilever more difficult. In rebuffing Kraft’s bid publicly on Friday, Unilever cited “strategic” in addition to financial reasons.

While sources told Reuters that Kraft believes that investing in innovation would be an important part of the combined company, analysts have begun to question whether 3G’s operational approach hinders Kraft’s ability to grow over the long term.

“We can understand how some investors could wonder if Kraft’s efficiency-centric model is as sustainable as many have believed,” Barclays analysts said earlier this month.

Kraft’s sales were down 3.8 per cent to $6.86 billion in the fourth quarter of 2016. Kraft has attributed the decline in sales to a pruning of its portfolio, as it weeds out non-profitable products. It sees tight operational management as perfectly compatible with sales growth.

London- and Rotterdam-based Unilever — whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise — defines itself as a business “making sustainable living commonplace.”

This means putting money with an eye beyond the immediate bottom line, such as products with low environmental impact and resources toward bringing safe water to under-served regions.

“(The rebuff of Kraft) makes us also wonder if Unilever’s focus on sustainability might make it very resistant to any further approach from Kraft,” said Royal Bank of Canada analyst David Palmer.

Adding to Kraft’s challenges, the U.S. consumer food company will need to either integrate or find other options for Unilever’s household and personal care (HPC) business, which makes products such as toothpaste, soaps and detergents.

“It seems plausible that the HPC piece of (Unilever) then becomes a merger partner for something 3G might do on its own in HP. In other words, this could be part one of a huge two-step process,” said Don Bilson, head of research at event-driven research firm Gordon Haskett.

Kraft, Unilever and 3G Capital declined to comment.

Management philosophy brewed at Anheuser Busch

Co-founded by Brazilian billionaire financier Jorge Paulo Lemann, 3G combined Kraft and H.J. Heinz Co in 2015 to create a company that now has a $112 billion market capitalization, and combined Burger King and Tim Hortons in 2014 in a $11 billion deal.

The 3G management philosophy was developed by Lemann and Brazilian investment bankers Marcel Herrmann Telles and Carlos Alberto Sicupira, and pioneered at Budweiser brewer Anheuser Busch InBev, the world’s biggest brewer, which they helped create through a series of big mergers.

Lemann, Telles and Alberto Sicupira made their mark at Banco Garantia, the investment bank they founded in Brazil in the 1970s. After selling it to Credit Suisse Group AG in 1998, they formed private equity firm 3G to invest in U.S. consumer names.

After 3G teamed up with billionaire Buffett to buy Heinz in 2013, they closed six factories and cut 7,000 jobs in 18 months. Operating margins jumped from 18 per cent to 26 per cent.

Lemann, Brazil’s richest man and a former tennis pro, once served on the board of Gillette, where he met Buffett, who has partnered with Lemann on Heinz and Kraft and has said he would like to do more deals.

While 3G is often seen as extreme — at Heinz they limited employee use of company printers to 200 pages per month, requiring double-sided printing — zero-based budgeting has been adopted elsewhere, such as at Oreo cookie maker Mondelez International.

— Reporting for Reuters by Michael Flaherty and Lauren Hirsch in New York.

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The company announced Wednesday it will shut its Richardson Foods plant at St. Marys, Ont., which makes and sells salad dressings, sauces and dessert toppings for foodservice clients, affecting 214 jobs.

The St. Marys plant and facilities at Campbell, New York; Lehigh Valley, Pennsylvania; Madison, Wisconsin; Federalsburg, Maryland; and Fullerton and San Leandro, California will close over the next 12 to 24 months, for an expected net loss of about 2,600 jobs in all.

In a “staged process” over that time, the company will shift production from those sites to other plants in North America, Kraft Heinz’s senior vice-president for corporate and government affairs, Michael Mullen, said in a statement.

Consolidating its manufacturing across its North American network is “a critical step in our plan to eliminate excess capacity and reduce operational redundancies” for Kraft Heinz, which formed this summer from the merger of Kraft Foods Group into H.J. Heinz.

The move “will make Kraft Heinz more globally competitive and accelerate the company’s future growth,” Mullen said, describing the plan as a “difficult but necessary decision (made) after thoroughly exploring extensive alternatives and options.”

The Richardson Foods plant, which has operated at St. Marys, about 35 km north of London, for over 50 years, came to Heinz in 2004, when it bought the Unifine Richardson business in Canada from Dutch processor Royal Cosun.

Jim Krushelniski, Heinz Canada’s CEO at the time, said the St. Marys plant offered “dedicated manufacturing in a state-of-the-art facility, expansion in key product and customer segments, and proven foodservice development resources that have the capability to service an increased demand for proprietary recipes.”

Richardson Foods and Heinz Canada “have had a strong and long presence in our community, and we sincerely appreciate the excellent working relationship they have had with the town,” St. Marys mayor Al Strathdee said in a separate statement Wednesday.

Strathdee said the town is “saddened” by the news of the pending closure and it’s “our sincere hope that these individuals will be able to find employment (in town) and remain a part of our community.”

Mullen said Kraft Heinz, over the next two years, will also move production from its existing Davenport, Iowa plant to a new site to be built in the Davenport area and move “part” of its cheese production from its Champaign, Illinois plant to other factories and make Champaign “a centre of excellence in dry and sauce production.” Both moves will take up to two years to complete.

Kraft Heinz in 2016 will also move its Oscar Mayer arm and its U.S. meats business unit from Madison, Wisconsin to its headquarters in Chicago, bringing 250 jobs to the Chicago area.

The moves announced Wednesday follow Kraft Heinz’s separate announcement in August it would cut about 2,500 jobs in the U.S. and Canada, including about 700 of the 1,900 positions at its Chicago headquarters.

Heinz, in the year before its merger with Kraft, also sold its tomato processing plant at Leamington, Ont. to Highbury Canco, a consortium of Ontario investors including plant managers. Heinz had said the previous fall it would shut the Leamington plant and lay off its 700-plus employees. –– AGCanada.com Network

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Heinz, backed by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital — known as an aggressive cost-cutter — combined with Kraft in March in a $46 billion deal that created the third-largest North American food company (all figures US$).

Kraft Heinz currently has about 46,000 employees, including about 1,900 at the company’s headquarters, spokesman Michael Mullen in an emailed statement to Reuters on Wednesday.

The combined Kraft Heinz has said it expects to save about $1.5 billion in annual costs by the end of 2017.

After buying Heinz in 2013 with Berkshire Hathaway, 3G cut 7,000 jobs over 18 months and closed six factories.

It also implemented many smaller curbs on spending, such as limiting employee use of company printers to 200 pages per month.

Kraft Heinz shares were down 0.8 per cent at $77.32 in early trading. The shares have risen about nine per cent since they started trading on July 6.

— Reporting for Reuters by Yashaswini Swamynathan in Bangalore.

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Canada’s Competition Bureau has confirmed that it wrapped its review of the proposed deal and issued its “no action” letter to the companies on Wednesday.

A “no action” letter, in such deals, confirms the bureau will not challenge the proposed transaction at Canada’s Competition Tribunal, as per the merger provisions of the federal Competition Act.

The bureau, in its review, is “satisfied that the proposed transaction is unlikely to result in a substantial lessening or prevention of competition in any relevant market in Canada.”

The decision follows the expiration Tuesday of the U.S. government’s mandatory waiting period on the Heinz/Kraft deal, as per the federal Antitrust Improvements (Hart-Scott-Rodino) Act.

Among other closing conditions, the deal now requires a vote by Kraft shareholders, scheduled for a special meeting on July 1, Kraft said in a release Wednesday.

The deal calls for Heinz to take a 51 per cent stake in what would be called the Kraft Heinz Co., giving Kraft shareholders one share in the combined company plus a special US$16.50 cash dividend for every Kraft share held.

The deal, which gives Kraft stakeholders 49 per cent of the new company, is expected to create North America’s third-largest food and beverage company, and the world’s fifth largest.

Market analysts previously predicted a Heinz/Kraft pairing wouldn’t face any major antitrust hurdles as the two companies have relatively little overlap in their product lines.

Kraft, whose facilities in Canada include two processing plants and three distribution centres, has cheeses, processed meats, packaged meals and coffee in its product lines. Heinz, whose assets include two processing plants in Ontario, is well known in ketchup, sauces and frozen foods.

The deal is seen as giving Heinz access to the Kraft brands, which are believed to be in 98 per cent of North American households. Heinz’s international infrastructure, in turn, is expected to help capitalize on “untapped opportunity” overseas for the Kraft lines.

Combined, the Kraft Heinz Co. would have eight brands it estimates as worth over US$1 billion each, including Kraft, Heinz, Oscar Meyer, Philadelphia, Velveeta, Lunchables, Maxwell House and Planters, and five other brands worth over US$500 million each, including Jell-O, Kool-Aid, Cracker Barrel, OreIda and CapriSun. — AGCanada.com Network

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Nestle chairman Peter Brabeck-Lemathe told the company’s annual shareholder meeting the creation of Kraft Heinz Co. and Jacobs Douwe Egberts, as well as “spectacular” growth of some other companies in developing markets, required two things of Nestle in order to remain the global leader.

“First of all, an acceleration in our policy of adjusting our portfolio of activities and at the same time better use of our size,” Brabeck said.

Nestle, the world’s biggest food group by sales, has already taken steps toward both of those goals. It has sold underperforming businesses including PowerBar and the bulk of Jenny Craig, and created a new executive board role to oversee several corporate support functions globally. The move was aimed at making the most of its scale.

In Canada, Nestle’s business includes 21 processing plants, distribution centres and sales offices across the country, with brands in pet foods, baby foods, frozen pizzas and desserts, prepared meals, coffee and chocolate.

Nestle’s acquisitions in recent years have included Kraft’s Delissio frozen pizza business in Canada and the U.S., the Gerber line of baby foods and, in 2012, Pfizer’s infant-nutrition product lines, such as Materna vitamins.

Brabeck’s comments come three weeks after the announcement that H.J. Heinz agreed to buy Kraft Foods, backed by Warren Buffett’s Berkshire Hathaway and private equity firm 3G Capital, creating the third-largest packaged food company in North America.

“Ruthless”

“3G and Buffett have pulverized the food industry market, particularly in America with serial acquisitions,” Brabeck said. “3G’s partners are known in our industry for ruthless cost-cutting and have already proven numerous times that they are capable of reducing operating costs in particular by between 500 and 800 basis points, which has a revolutionary impact on all the other members of the industry.”

A spokesman for 3G declined to comment on the remarks.

3G’s founders orchestrated the formation of Anheuser-Busch InBev, and the takeovers of Burger King, Tim Hortons and Heinz.

European coffee company D.E. Master Blenders is in the process of forming a joint venture with the coffee business of Mondelez International. The combined company will be the world’s largest standalone coffee company, though it will still be far behind Nestle’s coffee business.

Brabeck also voiced support for the Swiss National Bank’s recent currency move, saying the stronger Swiss franc would aid Swiss competitiveness in the long run by encouraging innovation. He also dismissed the possibility of Nestle moving to report in any other currency.

“I’ve often said that for as long as the Swiss flag flies over our corporate buildings, Nestle will stick with the Swiss franc,” he added.

— Martinne Geller is a Reuters correspondent covering the European consumer goods sector from London. Includes files from AGCanada.com Network staff.

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Shares of Kraft — which operates 35 plants in Canada, the U.S. and Puerto Rico — were up more than 38 per cent near $85 in morning trading (all figures US$).

The deal would provide Heinz with access to Kraft brands, which it says are in 98 per cent of North American households and include well-known names like Oscar Mayer and Jell-O.

The international presence of Heinz, whose Canadian holdings include two processing plants in Ontario, provides an opportunity to sell Kraft’s brands overseas.

Kraft stockholders would get one share in the combined company, to be called the Kraft Heinz Co., and a special cash dividend of $16.50 for every share held.

Heinz shareholders will own 51 per cent of the combined company and Kraft shareholders the rest.

Packaged-food makers such as Kraft are battling sluggish demand as consumers shift to products perceived to be healthier.

Kraft has overhauled its senior management over the past few months and has said it will develop products to meet changing consumer preferences.

However, “the board saw the 3G opportunity as more compelling,” Kraft CEO John Cahill, who will be vice-chairman of the combined company, said on a conference call.

The combined publicly traded company is expected to save about $1.5 billion in annual costs by the end of 2017. It will have eight brands worth over $1 billion each, the companies said.

Kraft Heinz will be led by Heinz CEO Bernardo Hees and have revenue of about $28 billion, about half that of market leader PepsiCo in 2014.

Berkshire Hathaway will own more than 320 million shares in the combined company, which will have about 1.22 billion shares outstanding, Buffett told CNBC.

“We will be in the stock forever,” he said.

Brazilian private equity firm 3G Capital and Berkshire Hathaway acquired Heinz for $23.2 billion in 2013.

The Kraft deal is unlikely to face antitrust hurdles as there is little overlap in products, analysts said.

Kraft’s products include cheese, processed meats, packaged meals and Maxwell House coffee, while Heinz makes ketchup, sauces and frozen foods.

Kraft is 3G Capital’s fifth major deal in the food and beverage industry since 2008, when it engineered a takeover of Anheuser-Busch by brewer InBev.

3G Capital also controls Restaurant Brands International, formed when its Burger King business bought Canadian coffee and donut chain Tim Hortons.

— Sruthi Ramakrishnan and Anjali Athavaley report for Reuters from Bangalore and New York City respectively. Writing for Reuters by Lisa Von Ahn.

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