Court Declines to Dismiss Securities Suit Over 2015 Merger of Kraft and Heinz

The Northern District of Illinois denied motions seeking to dismiss a securities lawsuit against the Kraft Heinz Company and other defendants over the merger of Kraft and Heinz. One of the motions to dismiss was filed by Kraft Heinz and the other by 3GCapital Partners, a private equity partnership that helped with the merger.

The opinion and order summarized the plaintiffs’ claims saying that 3G and Kraft “touted synergies, efficiencies, and eliminating redundancies as the benefits of Kraft’s merger with Heinz, but after the companies combined, executives at Kraft Heinz realized there were fewer savings to be had from synergies than they expected, and certainly not on the level of the $1.5 billion they had suggested to investors.”

Additionally, the plaintiffs, owners of Kraft Heinz securities, alleged that Kraft Heinz’s engaged in cost-cutting which lowered its products’ quality but continued to tell investors that the cost savings were not from budget cuts but were a benefit of the merger, this led eventually to a “$15.4 billion dollar impairment to its goodwill and intangibles” and a hit to its stock price.

The class-action complaint was filed in February 2019 alleging violations of the exchange Act and a Securities and Exchange Commission rule. Kraft Heinz sought to dismiss the complaint through arguing that the plaintiffs did not “plead an underlying securities violation or culpable participation by the individual defendants” in the working complaint.  3G argued for dismissal claiming that the complaint did not state a sufficient claim.

In its filing, the court said it reviewed both the 233-page amended complaint and the 265 pages of briefing on dismissal before ruling in favor of the plaintiffs. Judge Robert M. Dow Jr.  determined that the claims were sufficiently pleaded by the plaintiffs, and declined to dismiss the claims against either of the plaintiffs. 

Kraft Heinz and individual defendants are represented by Paul, Weiss, Rifkind, Wharton & Garrison and Jenner & Block. 3G is represented by Kirkland & Ellis and Cooley.