Union Asset Management Holding AG, et al. v. Kraft Heinz Co., et al.

Court: United States District Court for the Northern District of Illinois
Case Number: 1:19-cv-01339
Class Period: 05/04/2017 - 02/21/2019
Case Leaders: Salvatore J. Graziano, Katherine M. Sinderson, Abe Alexander
Case Team: Nicholas Gersh

Securities fraud class action filed on behalf of a class of persons and entities who purchased or otherwise acquired publicly traded securities of The Kraft Heinz Company (“Kraft” or the “Company”) between November 5, 2017 and August 7, 2019 (the "Class Period").

Plaintiffs allege violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by Kraft CEO Bernardo Hees, former Kraft CFO Paulo Basilio, and current Kraft CFO David A. Knopf (‘Defendants”).

These claims arise from the Defendants’ misstatements regarding the Company’s financial position, including the carrying value of Kraft’s assets, the sustainability of Kraft’s margins, and the success of recent cost-cutting strategies by the Company. 

On October 8, 2019, the Honorable Robert M. Dow, Jr. appointed Union Asset Management as Co-Lead Plaintiff, BLB&G as Lead Counsel, for the Class in the consolidated action.  The Amended Class Action Complaint was filed on January 6, 2020. Defendants’ filed their motions to dismiss on March 6, 2020.  Plaintiffs moved to amend their complaint based on new information regarding Kraft’s internal EBITDA projections, and filed their amended complaint on August 14, 2020.  Defendants’ filed their renewed motions to dismiss on September 28, 2020. Plaintiffs filed their opposition on November 12, 2020, and Defendants filed their replies on December 3, 2020.

Background on the Alleged Fraud

Kraft is the world’s fifth-largest food and beverage manufacturer in terms of sales and produces many well-known brands including Kraft, Heinz, Oscar Mayer, Jell-O, Maxwell House, and Velveeta.  The Company was formed as the result of the 2015 merger between Kraft Foods Group, Inc. and H.J. Heinz Holding Corporation. That merger was orchestrated by the private equity firm 3G Capital (“3G”) and Berkshire Hathaway with the intention of wringing out excess costs from the legacy companies.  3G is particularly well-known for its strategy of buying mature companies with relatively slower growth and then cutting costs using “zero-based budgeting,” in which the budget for every expenditure begins at $0 with increases being justified during every period. 

Based on BLB&G’s ongoing investigation, Plaintiffs believe that Kraft misrepresented the carrying value of its assets, sustainability of its margins, and the success of the Company’s cost-cutting strategy in the wake of the 2015 merger.  During the time that Kraft was making these misrepresentations and artificially inflating its stock price, Kraft’s private equity sponsor, 3G Capital, sold $1.2 billion worth of Kraft stock. 

On February 21, 2019, Kraft announced that it was forced to take a goodwill charge of $15.4 billion to write-down the value of the Kraft and Oscar Mayer brands—one of the largest goodwill impairment charges taken by any company since the financial crisis.  In connection with the charge, Kraft also announced that it would cut its dividend by 36% and incur a $12.6 billion loss for the fourth quarter of 2018.  That loss was driven not only by Kraft’s write-down, but also by plunging margins and lower pricing throughout Kraft’s core business.  In response, analysts immediately criticized the Company for concealing and “push[ing] forward” the “bad news” and characterized the Company’s industry-leading margins as a “façade.” 

Heightening investor concerns, Kraft also revealed that it received a subpoena from the SEC in the same quarter it determined to take this write-down and was conducting an internal investigation relating to the Company’s side-agreements with vendors in its procurement division.  Because of this subpoena and internal investigation, Kraft was also forced to take a separate $25 million charge relating to its accounting practices. 

Plaintiffs allege that because of the Company’s misrepresentations, the price of Kraft’s shares traded at artificially-inflated levels during the Class Period.