Kraft Foods Group, the maker of Velveeta cheese and Oscar Mayer meats, will merge with ketchup maker HJ Heinz, owned by 3G Capital and Warren Buffett's Berkshire Hathaway, creating the world's fifth-largest food company.

Kraft's shares jumped about 26 per cent in premarket trading after the announcement of the deal, which will bring Heinz back to the public market following its takeover two years ago.

The combined company, to be led by Heinz Chief Executive Bernardo Hees, will have revenue of about $28 billion, the companies said in a statement on Wednesday.

Kraft has been battling sluggish demand for packaged food products in the United States.

The combined company, which will be North America's third-largest food and beverage company, is expected to save about $1.5 billion annually by the end of 2017, the companies said.

Kraft shareholders will own a 49 per cent stake in the combined company and Heinz shareholders 51 per cent.

Kraft shareholders will get one share in the combined company, to be called the Kraft Heinz Co, and a special cash dividend of $16.50 for every share held.

As of Tuesday's close, Kraft had a market value of about $36 billion, based on shares outstanding as of March 2.

Brazilian private equity firm 3G Capital and Warren Buffett's Berkshire Hathaway acquired Heinz for $23.2 billion in 2013.

Kraft is 3G Capital's fifth major deal in the food and beverage industry since 2008, when it engineered a takeover of Anheuser-Busch by brewer InBev.

3G Capital also owns 51 per cent of Restaurant Brands International Inc, formed when its Burger King business bought Canadian coffee chain Tim Hortons Inc last year.

Berkshire and 3G Capital will fund the special cash dividend, which totals about $10 billion.

The combined company will have eight brands worth more than $1 billion each and five worth $500 million-$1 billion each, the companies said.

Alex Behring, Heinz's chairman and 3G Capital managing partner, will become chairman of the combined company and Kraft Chief Executive John Cahill will be vice chairman.

The deal is expected to close in the second half of 2015.

The Wall Street Journal reported on Tuesday that the companies were in talks.

Lazard was Heinz's financial adviser, while Cravath, Swaine & Moore and Kirkland and Ellis were its legal advisers.

Centerview Partners was Kraft's financial adviser and Sullivan & Cromwell its legal adviser.

Kraft's shares were trading at $77 before the bell. – Reuters