KRAFT deal: What should H.J.HEINZ workers expect?

H.J Heinz Co and Kraft Foods Group merged into the single Kraft Heinz Company on March 25, subject to regulatory approval which is expected later this year. What should Heinz workers expect now?

 

The business media have noted that the merger with Heinz brings to Kraft the international sales platform that Kraft lost in the split that created Mondelez in 2012; the new company is the 5th largest global food company. Analysts are expecting massive job cuts.

23,000 Kraft workers will get the sour taste of cost cutting experienced by Heinz employees over the past year. They can expect job cuts, factory closures and introduction of the budgeting process that builds from zero each year and requires justification for every cost, including every worker.

Does this mean that job cuts and restructuring at the Heinz part of the new company is over and the focus will be entirely on the former Kraft? Can the remaining 24,000 Heinz workers relax and stop worrying about their future?

Unfortunately the answer is no. Private equity company 3G, which is the engineer of the merger in partnership with Warren Buffet’ Berkshire Hathaway, never stops seeking ways to increase returns to shareholders. Its model is based on continuous cost reduction, often at the expense of jobs, wages and conditions. 3G is the world champion in slashing costs, with a reputation for speed. An example is the leading global brewing company AB Inbev built by 3G through mergers and acquisitions and continual aggressive job cuts.

The merger deal according to some reports involves USD 28 billion in debt and paying it down is one priority – workers of the new company will be expected to pay – some with their jobs – to deliver at least USD 1.5b in annual savings.

The new entity will be looking for ‘synergies’. This is corporate language for using one supply chain, one sales department, one national office and so on. Kraft Heinz will also be looking at whether one factory can increase capacity to allow for the closure of another.

Production lines will be benchmarked against each other across factories, regions and national boundaries. The company will attempt to close those it sees as less profitable, or rather where operational costs are too high.

Food production is not the overall purpose of this merger- the use of financial instruments and cost reductions to squeeze maximum profits for shareholders through mergers and acquisitions, closures and restructuring are the tactics to achieve the overall objective – to increase and entrench wealth and privilege.