The parent companies of two iconic food brands, Kraft and Heinz, on Wednesday announced a $36 billion merger to create the world's fifth-largest food company.

A University of Kansas expert says that while large-company mergers often don't work out, this one seems to present some promise both at tapping into international food markets and addressing the challenge of less demand for processed foods.

George Bittlingmayer, Wagnon Distinguished Professor of Finance at the School of Business, discusses the merger and its prognosis. His research interests include mergers and acquisitions, investment by business, and how politics and regulation affect financial markets. He also served as an economist at the Federal Trade Commission.

Q: Do you have a sense of why this merger happened now and what each side hopes to gain from it?

Bittlingmayer: This is classic consolidation of two businesses that are good at cost-cutting. One of the two, Kraft, is facing strong headwinds in the U.S. because consumers are turning away from processed foods like Jell-O, Lunchables and Velveeta. Kraft's products haven't found a ready market overseas. The other company, Heinz, is better positioned because it has a solid and growing presence abroad.

On average, large deals tend not to do well. Classic examples of large mergers that flopped include AOL-Time-Warner, Daimler-Chrysler and HP-Compaq. The hope in these deals is often that there will be synergies, typically in terms of cost savings or in terms of leveraging technology or products from one entity to the other. They fail for a number of reasons: The synergies don't materialize; or it proves to be difficult to merge the cultures of the two companies; or one of the merging partners turns out to be riddled with problems.

The prognosis for the Heinz-Kraft deal is a bit better than for the average big merger. Both Kraft and Heinz are well-managed. Kraft has good profit margins; its big challenge is a declining business. Heinz is owned by two savvy operators: the private equity group 3G from Brazil and Berkshire-Hathaway, which has Warren Buffett at the helm. I would expect the new merged entity to be managed well and the integration of the two to be well-executed. The possible upsides to this deal include figuring out ways to get Kraft's products distributed internationally, something that Heinz has some experience with. With a growing middle class in emerging countries, there may be some scope for selling products in decline in the U.S. in countries like Brazil and Turkey that are catching up.

Q: What is the significance of this merger for consumers? What about investors?

Bittlingmayer: For consumers, the effects are likely to be neutral to good. There is actually little overlap in the product lineup, so standard antitrust concerns don't loom large. I would expect Kraft and Heinz to meet the current market challenges by cutting costs and prices and by trying to innovate an appeal to consumers with products that break out of the processed-food mold.

For investors, the picture is a bit mixed. The combined entity will continue to be publicly traded. The price of Kraft's stock popped up from $61 to $82 with the announcement. Most of that increase reflects a special dividend of $16.50 per share going to Kraft shareholders. Adjusting for that prospective payout, the company is still richly valued. Whether Kraft stock pans out as an investment will depend on how well the cost-cutting and other policies are executed. Long-term investors will be encouraged that Warren Buffett is on board and that the private equity firm 3G has a reputation for sticking with its investments and not just flipping them as some private equity firms do.

Q: What are typical effects of these large mergers? Are there any factors or outcomes in the future you will be paying attention to?

Bittlingmayer: Big deals can go either way, but as I've said, on average deals don't do well. There are real dangers in execution, with post-merger integration being a big issue. For this deal, one possible change comes from the fact that 3G is known for its cost-cutting at the firms it invests in. The combined company will have two headquarters, one near Chicago for Kraft and one in Pittsburgh for Heinz. With the new owners at 3G playing a role, one might expect fewer corporate perks in Chicago. One reason Main Street tends not to like mergers — especially ones with big, efficiency-minded investors involved — is that it means less support for local charities, baseball teams and other activities.