Today marks my return to blogging after a brief (3 weeks) respite, and what better way to be welcomed back than with news of a mega-merger?!?  Today, Kraft Foods, a publicly traded company, and H. J.Heinz, owned by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G, signed a multi-billion dollar merger agreement to create what will become the third largest food company in North America. 

Under the proposed merger Kraft shareholders will receive 49% of the stock in the newly merged company, plus a cash dividend of $16.50 per share, representing a reported 27% premium on Kraft’s trading stock price as of Tuesday, March 24th which closed at around $61.33/share.  

The stock market reacted positively to the news with Kraft stock opening around $81/share and climbing up to $87 and settling down in the low $80’s (it was trading at $82/share around 2:00 pm). You can track the stock price here.  The immediate bump in price casts some shadows on the Kraft stock premium agreed to in the deal.

Among the possible legal hurdles are antitrust concerns, but the deal doesn’t raise red flags on its face given the little overlap between the two companies.
 
The bigger, and more interesting corporate governance question will be the Kraft shareholder approval process requiring a proxy statement.  Kraft Foods is a Virginia corporation (see Articles of Incorporation), and thus the merger and Kraft’s shareholders’ rights are governed by the Virginia Corporation Act.  Because Kraft is a public corporation, shareholders will not have appraisal rights under Va. Code Ann. § 13.1-730 (West) and those rights have not be altered in the Articles of Incorporation.  So the legal challenges, if any and given the size of the deal are likely, will have to assert that the transaction itself is flawed (either under duty of care or loyalty) or that the proxy process was defective in failing to disclose material information.  
-Anne Tucker