Kraft-Heinz Merger Faces Legal Headwinds

RICHMOND, Va. (CN) - A proposed $49 billion merger between Kraft Foods and the H.J. Heinz Co. will fatten execs' paychecks but do little for the companies' shareholders, a pair of class action lawsuits claim.

Kraft announced its intention to merge with Heinz on March 25, 2015, and in doing said Warren Buffet's Berkshire Hathaway and 3g Capital to invest a total $10 billion in the combined company.

The transaction is expected to close later this year, according to court documents.

But in a complaint filed in the Richmond Federal Court last week, lead plaintiff Steven Leitz claims the deal is "designed to ensure a transaction with Heinz on terms preferential to Heinz, and to subvert the interests of Plaintiff and other public shareholders of Kraft."

He says the deal forbids Kraft to seek out alternative business partners, gives Heinz the right to revise the terms of the merger agreement in response to any superior merger proposal, and requires Kraft to pay Heinz a $1.2 billion "termination fee" if the deal were to come apart for any reason.

"These provisions substantially and improperly limit the Board's ability to act with respect to investigating and pursing superior proposals," the complaint says. "These unreasonable deal protection devices preclude other bidders from making a successful competing offer for the Company."

Leitz goes on to accuse Heinz of filing a registration statement with the U.S. Securities and Exchange Commission that failed to disclose information shareholders would need to make an informed decision about the transaction.

Leitz seeks injunctive relief to prevent the merger from being realized until "all material information" is disclosed to Kraft's shareholders.

In a separate action filed in the Henrico County Circuit Court on May 1, lead plaintiff Tova Samouha claims Kraft Foods' board breached its fiduciary duty by agreeing to the proposed acquisition at a time when the company was experiencing a "temporary lull" in its stock price due to flat sales growth and falling margins.

"The Proposed Acquisition, valued at approximately $49 billion, is designed to allow Heinz to wrongfully wrestle control of the Company away from Kraft's shareholders and into its own hands at a time when the Company is vulnerable," Samouha's complaint says.

The plaintiff goes on to say Heinz got a sweetheart deal by promising Kraft board members prestigious post-merger positions in the Kraft Heinz Company.

Like Leitz, Samouha also blasts provisions of the proposed agreement that the shareholder says are designed to prevent Kraft from considering a merger with any other party.

Samouha is also seeking injunctive relief to prevent the merger from happening.

Leitz is represented by Robert Wilson, L. Kendall Satterfield and Rosalee Thomas of Finkelstein Thompson LLP of Washington D.C., and Brian Kerr, of Brower Pivan, of New York.

Samouha is represented by Christie Leary and Amy Bradley of Fairfax. Va.

Neither Kraft nor attorneys for the plaintiffs returned requests for comment from Courthouse News.

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