KRAFT FOODS GROUP INC. $83 - Nasdaq symbol KRFT

KRAFT FOODS GROUP INC. $83 (Nasdaq symbol KRFT; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 588.0 million; Market cap: $48.8 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.kraftfoodsgroup.com) is merging with H.J. Heinz.

The new firm— The Kraft Heinz Company— will be the 5th largest food company in the world, with annual revenue of $28 billion.

Under the terms of the deal, Kraft shareholders will receive one share of the new firm for each share they currently hold. They will also receive a special dividend of $16.50 a share.

Kraft investors will own 49% of the new firm, while Heinz’s owners— Brazilian private equity firm 3G Capital Partners and billionaire investor Warren Buffett— will own the remaining 51%. Assuming Kraft shareholders approve, the companies expect to complete the merger in the second half of 2015.

Following the merger, the new firm will keep paying Kraft’s current annual dividend rate of $2.20 a share, which yields 2.7%.

Combining manufacturing plants and eliminating overlapping marketing and administrative functions will help boost the new company’s long-term profitability. However, Kraft’s shares will likely stay in a narrow range during this transition.

Kraft Foods is now a hold.

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