Kraft Heinz Must Face Shareholder Lawsuit Over Merger

A federal judge said Kraft Heinz must face a proposed class action over the packaged food company’s failed push to aggressively cut costs, culminating in a US$15.4 billion writedown and a US Securities and Exchange Commission accounting probe, reported Reuters.

US District Judge Robert Dow in Chicago said shareholders sufficiently alleged that Kraft Heinz, where Warren Buffett’s Berkshire Hathaway Inc owns a 26.6% stake, knowingly concealed how belt-tightening drove away customers and suppliers, making its optimistic statements about its future false and misleading.

Related: Kraft Heinz To Sell Planters For $3B To Hormel

“Plaintiffs point to several allegations that, considered together, raise a cogent and compelling inference” of an intent to defraud, Dow wrote in a 50-page decision on Wednesday, August 11.

Kraft Heinz was formed in 2015 by the merger of Kraft Foods with H.J. Heinz, the latter of which was owned by Berkshire and Brazilian private equity firm 3G Capital.

Dow also let shareholders pursue claims against 3G and several of its officials, including Kraft Heinz’s Chairman Alex Behring and its former chief executive Bernardo Hees.

These included an insider trading claim against 3G over its sale of US$1.2 billion of Kraft Heinz stock in August 2018, six months before the writedown.

Berkshire does not run Kraft Heinz day-to-day and is not a defendant. The lead plaintiffs, Germany’s Union Asset Management Holding AG and Sweden’s Sjunde AP-Fonden, are respectively represented by lawyers including Salvatore Graziano at Bernstein Litowitz Berger & Grossmann, and Sharan Nirmul at Kessler Topaz Meltzer & Check. Neither was immediately available for comment.

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