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Our Food Choices Are Driving M&A Activity.
But Who Wins?

On the podcast this week, we’re tackling the sudden flurry of activity in the Consumer/Retail M&A (and reverse merger!) space.

The two exciting deals we’ll be discussing are:

- Ferrero (a private, Italian confectioner known for higher end European staple candies) acquiring Kellogg (an American grocery staple brand known for products often categorized as “processed foods” — more on this below)

- The rumored breakup of Kraft Heinz, once America’s third largest food conglomerate, which has lost something like 60% of its value since the brands combined in 2015.

Before we break it all down, sharing some special insight and history for you here:

Ferrero / Kellogg
In 2023, Kellogg spun off its legacy cereal brand from its more “high growth” products, creating a new company called “Kellanova”. The goal was to:

a) potentially unlock value and offset the so-called “conglomerate discount” — put plainly, the sum of the parts is often more than the whole

b) isolate the more “high growth” segments of the business from the more stagnant ones, and

c) make both companies more attractive M&A candidates, which is exactly what happened.

Last year, Mars announced a $36bn bid for Kellanova, and now Ferrero is stepping in to buy the much smaller remainder of Kellogg’s for around $3.1bn.

Why? Cereal consumption is down nearly 20% in the last five or six years, part of a larger conversation we will address at the end of this article.

Kraft / Heinz
Back in 2001, public ire was much more heavily directed towards tobacco than sugar. Kraft was, at the time, owned by Phillip Morris, who utilized one of the public market separation techniques we’ve discussed previously: a subsidiary IPO (also called an “equity carve-out”). This accomplished two goals:

a) allowing Phillip Morris to raise cash proceeds to settle a number of lawsuits, while also

b) distancing the Kraft Foods segment from the tobacco segment of Phillip Morris. 

In 2007, Altria (the artist formerly known as Phillip Morris) completed a full tax free spin-off of Kraft, which resulted in a full separation of the two entities. Prior to the spin, Phillip Morris still owned 89% of Kraft. The end result of the spin is two fully separate companies: Kraft and Altria.

A mere five years later, Kraft ITSELF split into two distinct entities:

• Kraft Foods, focused on legacy products like cheese & hot dogs, and

• Mondelez International, focused on “snack” products (e.g., Pringles, Oreos, and Cadbury, which Kraft had acquired in a hostile takeover).

Notably, Warren Buffet was a major investor in Kraft, given his predilection towards American nostalgia. One year later in 2013, his firm Berkshire Hathaway teamed up with Private Equity giant 3G to buy Heinz for ~$28bn.  

Heinz, at the time, was a ~150-year old company best known for (obviously) ketchup, but also other condiments like mayo and mustard and canned goods as well.  They were facing slow growth and rising costs, so they were a prime target for a buyout.

That deal was structured with Berkshire doing most of the financing, investing ~$8bn in preferred shares (Buffett’s signature move) and ~$4bn in common equity. 

3G, known for being a slightly more “ruthless” operator, also invested ~$4bn in equity, but took over the operations, cut costs, and got it chugging along.  

Then in 2015, Warren Buffet and 3G Capital led a special kind of deal to create the third largest food conglomerate in America at the time: Kraft and Heinz.  

Given Heinz had already been taken private through a more traditional LBO, its purchase of then-publicly traded Kraft is technically known as a “reverse merger”...simply a different way to take a company private than that classic LBO strategy.  

The total deal size was approximately $46bn; Kraft Shareholders received a special cash dividend of $10bn and 49% ownership of the new company.  

At the time, it looked like a home run — taking two trusted household brands, putting them under a single, efficient umbrella, and eliminating competition between the two.

But a decade later, the story looks quite different. Kraft Heinz's stock has dropped by more than 60% since the merger.  

Now, in 2025, Kraft Heinz is considering a breakup, and investors are reacting favorably to the news, with the stock up close to 7% since Friday.  The idea is to spin off parts of the business into a new entity, potentially separating products like ketchup from others like hot dogs and other processed meats. 

For Warren Buffett — who is known for getting most long term investments right — this investment might seem like a rare disappointment.  He’s on the record saying he “overpaid”. 

So, what the hell went wrong?

What does “ultraprocessed” even mean?

Well, just like we touched on with Kellogg, consumer tastes have changed. 

Anything labeled “processed food” has been all but demonized in the “wellness” culture we see on social media and in the news.  

And sure, the debate in America around highly processed or "ultraprocessed" foods seems black and white at first, right? We’ve all seen plenty of “wellness” content about “whole” foods. It conjures up images of fresh fruits and vegetables, typically showcased as single ingredient foods, and glorified as the antidote to “ultraprocessed food”. 

The latter comes in a package, has a combination of “hard-to-pronounce” ingredients, and has been linked by some studies to obesity and heart disease.  

But in terms of science — or the average American consumer — it’s a bit muddier. The NOVA classification system, which researchers often use, sorts foods into categories based on their level of processing, but its definitions have changed over time. Their application can be inconsistent between researchers, and they are rather arbitrary not only for scientists, but also to Americans simply trying to eat healthier.

For example: a prepackaged salad full of vegetables with a “pre-made”, “store-bought”, “multi-ingredient” dressing may be categorized as “processed”, while a homemade cake made with eggs, cream, sugar, etc. may be considered “unprocessed”.

And what if, for example, that salad is made by a legacy company you associate with say, hot dogs and Easy Cheese? That might also impact a consumer’s decision, no?

But should you forego the salad and just eat the cake every time? Probably not.

We are neither registered dieticians, nor scientists, so we can’t solve the question of whether or not “ultraprocessed foods” are “dangerous” to consume and in what quantities. I find myself constantly revising or unlearning lessons based on advice from all the noise out there on this topic.

But on Kristen’s recommendation, I listened to an older episode of the Maintenance Phase podcast, where the hosts articulated how vague and inconsistent the definition actually is. The science — which they researched far more diligently than I — often mixes up ingredients, production methods, and moral judgments about the food industry…to no one’s advantage. 

Their suggestion?  Rather than tossing a quasi-scientific label around, maybe we’re better “served” (terrible pun, I know) by using out-of-favor words like “junk food” after all, when that’s what we really mean. Who knows 🤷‍♀️, but it’s an interesting take to consider.

Ultimately, the dealmaking activity in this sector continues to beg the question: is this all just financial engineering? Are decision makers betting on a surge in nostalgia for old school American brands?

Or is there a fundamental strategic plan in place to revitalize these legacy companies in acquiescence to a permanently-changed consumer?