Groupe Lactalis to pay $3.2bn for Kraft Heinz’s cheese business

The transaction between the French dairy company and the packaged food giant is expected to close early next year

The Kraft Heinz Company has agreed to sell its natural, grated, cultured and speciality cheese businesses to a US-based affiliate of Groupe Lactalis. The French dairy giant will pay $3.2 billion in a deal that is expected to close in the first half of 2021.

The news comes on the heel of a business overhaul that Kraft Heinz announced seeking to fuel future growth.

The transaction includes Kraft Heinz’s natural, grated, cultured and speciality cheese businesses in the US, the grated cheese business in Canada, and the entire international cheese business outside these two countries.

The deal includes products under the brands Breakstone’s, Knudsen, Polly-O, Athenos, Hoffman’s, and Cracker Barrel in the US only, and Cheez Whiz outside the US and Canada only.

As part of the agreement, Kraft Heinz will partner with Lactalis on a perpetual license for Kraft in natural, grated and international cheeses, and Velveeta in Shredded and international cheeses.

Kraft Heinz will retain the Philadelphia cream cheese, Kraft singles, Velveeta processed cheese and Cheez Whiz Processed cheese businesses in the US and Canada. The company also keeps Kraft, Velveeta and Cracker Barrel Mac & Cheese businesses worldwide, and the Kraft Sauces business worldwide.

“We believe these cheese and dairy businesses will thrive in the hands of a global dairy company like Groupe Lactalis,” said Kraft Heinz chief executive Miguel Patricio. “At the same time, the transaction will enable us to build a sustainable competitive advantage in businesses where we have stronger brand equity, greater growth prospects and can use our manufacturing scale and consumer-based platforms approach. This is a great example of agile portfolio management at work.”

Consumer-driven platform

As outlined in the new Kraft Heinz operating model, platform roles will help guide resource allocation and investment decisions. 

Kraft Heinz will focus on growth areas and take strategic action where appropriate. This approach will help to accrete the company’s growth profile, enhance strategic focus, and create shareholder value.

Under the terms of the agreement, Kraft Heinz will sell production facilities located in Tulare, (California); Walton, (New York); and Wausau, Wisconsin, and a distribution centre in Weyauwega, Wisconsin. 

These facilities and their employees will continue to operate as usual. 

Approximately 750 employees will be transferred from Kraft Heinz to Groupe Lactalis.

Economic impact

The cheese businesses being sold contributed approximately $1.8 billion to Kraft Heinz’s net sales for the twelve months (LTW) ended June 27, 2020. 

The transaction valuation represents an approximate 12x multiple of LTM adjusted EBITDA for the standalone business. 

Kraft Heinz expects to use post-tax transaction proceeds primarily to pay down debt.

RBC Capital Markets, served as exclusive financial advisor to Kraft Heinz for this transaction, while Paul, Weiss, Rifkind, Wharton & Garrison served as legal advisors.