Kraft Heinz is backed by Brazilian-US investment group 3G Capital and Warren Buffett’s Berkshire Hathaway © REUTERS

Kraft Heinz has struck a deal to sell parts of its cheese business to France’s Lactalis for $3.2bn, saying it would use the proceeds to help reduce its $26bn debt burden after a protracted period of underperformance.

Under the all-cash deal, which is subject to regulatory approval, Lactalis, the world’s largest cheese producer, will acquire brands in the US including Cracker Barrel, Breakstone’s and Knudsen, as well as production facilities in California, New York and Wisconsin.

Lactalis said it expected to add “additional American jobs” to support the newly acquired business. It already employs 2,600 people in the US.

The disposal is the latest move by Kraft Heinz, backed by Brazilian-US investment group 3G Capital and Warren Buffett’s Berkshire Hathaway, to shore up its balance sheet. Kraft Heinz announced the agreement in a virtual investor day on Tuesday, at which it also laid down plans for an additional $2bn of cost cuts and new financial targets.

The company’s brands have fallen out of favour with consumers, forcing it to take a series of writedowns to reflect diminished prospects for some of its best-known products including Oscar Mayer meats.

While demand for its packaged fare has picked up during the pandemic, Kraft Heinz fell to a $1.65bn loss in its most recent quarter and shares in the company have dropped 59 per cent since the start of 2018.

“We feel this will help us tremendously on our growth ambitions,” Miguel Patricio, Kraft Heinz’s chief executive, said of the deal, noting the group would retain cheese brands including Philadelphia and Kraft Singles.

The transaction covers Kraft Heinz’s natural, grated, cultured and speciality cheese interests in the US, grated cheese in Canada, as well as its entire cheese business in other countries. The company will shed brands including Polly-O, Hoffman’s and Athenos in the US only and Cheez Whiz outside North America. About 750 Kraft Heinz employees will join Lactalis.

Privately held Lactalis is among the world’s biggest dairy groups with €20bn in revenue last year. Founded south of Paris in the 1930s, it is still controlled by the family of the founder, and run by his son Emmanuel Besnier.

Thierry Clément, chief executive of Lactalis North America, said in a statement that the combination would “create important new opportunities for domestic and international expansion, product innovation, and positive community and employee impact”.

Kraft Heinz has long been criticised for relying on expense reductions and starving brands of investment, yet Mr Patricio said on Tuesday that the company no longer had a “cost-cutting mentality”. It planned to direct the $2bn in savings towards expansion, with plans to increase marketing spending by 30 per cent over the next five years.

“Instead of only dropping savings to the bottom line, today we are reinvesting those savings in the business to fuel our growth,” Mr Patricio said. The company provided new “long-term” financial targets for organic net sales growth of between 1 and 2 per cent and adjusted earnings per share growth of between 4 and 6 per cent.

Shares in Kraft Heinz crept up 0.3 per cent to $31.97 in New York on Tuesday.

Perella Weinberg Partners was lead financial adviser to Lactalis Group and Dentons legal adviser. RBC Capital Markets was financial adviser to Kraft Heinz and Paul, Weiss, Rifkind, Wharton & Garrison was legal adviser.

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