Kraft Foods Merging With Buffett-Backed Heinz

H.J. Heinz Company and Kraft Foods Group have agreed to merge, in a deal that makes it the fifth largest food and beverage company in the world.

The combined company will be called the Kraft Heinz Company and have revenues of roughly $28 billion and a stable of brands including Jell-O, Oscar Mayer, Planters and Kool-Aid.

Under the terms of the deal, Kraft shareholders will own a 49% stake in the combined company and receive a special cash dividend of $16.50 per share. Existing Heinz shareholders will own 51% of the company.

Shares of Kraft surged 34% in premarket trading to $82.56.

Warren Buffett's Berkshire Hathaway and private equity firm 3G Capital will put up $10 billion to fund the special dividend. In 2013, they took Heinz private for $23 billion.

"I am delighted to play a part in bringing these two winning companies and their iconic brands together," said Warren Buffett in a statement. "This is my kind of transaction, uniting two world-class organizations and delivering shareholder value."

Buffett and 3G plan to stick around as investors in the new company, saying they are "committed to long-term ownership."

The deal is expected to provide $1.5 billion in cost savings each year by the end of 2017, the companies said.

Today's Kraft, with brands like Velveeta, Kraft Macaroni & Cheese and Oscar Mayer, is a slimmer version of its former self. In 2012 it split with its snack food business, which is now known as Mondelez International.

The merger, which is expected to close in the second half of the year, is subject to shareholder and regulatory approval.

Current Heinz CEO Bernardo Hees will keep the top job at the combined company, which will retain headquarters in both Pittsburgh and Chicago.