--Berkshire Hathaway and 3G team up to buy Heinz in $23 billion
deal
--Deal is for $72.50 per share, a 20% premium
--Berkshire, 3G will each own 50% of equity, Berkshire will also
own preferreds
(Adds details from press conference starting in sixth
paragraph.)
By Erik Holm and Paul Ziobro
Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) is joining
private-equity firm 3G Capital to buy ketchup-maker H.J. Heinz Co.
(HNZ) in a $23 billion deal, one of the largest-ever acquisitions
in the food industry.
As part of the deal, which has been unanimously approved by
Heinz's board, shareholders will receive $72.50 in cash for each
share, a 20% premium to Wednesday's close.
The deal represents a rare partnership for Mr. Buffett, who has
used Berkshire's vast resources in the past to acquire top brands
across a range of industries without teaming up with others.
Berkshire will provide about $12 billion to $13 billion in cash for
the deal, but Mr. Buffett told CNBC Thursday that 3G--a Brazilian
investment firm that took over Burger King in 2010--would be "in
charge of things."
"It's their baby from an operational standpoint," he said.
The deal, which requires the approval of Heinz shareholders and
regulators, will be financed through a combination of cash,
rollover of Heinz's existing debt and debt financing. It is
expected to close in the third quarter.
The deal will take Heinz private as it tries to expand sales in
emerging economies while managing a challenging environment in
developed markets.
Heinz has about 60% of the U.S. ketchup market and 26% of the
market globally, according to Euromonitor International. It sells
650 million bottles of ketchup in 140 countries annually, and its
global market share is more than four times its next closest rival,
Kagome, a Japanese brand.
Heinz also sells baked beans under its flagship brand and offers
baby food, tater tots and soup under a variety of other brand
names.
Heinz Chief Executive William Johnson, son of former National
Football League head coach Bill "Tiger" Johnson, has been blunt
about the challenges facing the food industry in developed markets,
where shoppers are bargain hunting more than ever. At a press
conference in Pittsburgh on Thursday, he said the company could be
more "more focused, more competitive, more nimble and benefit from
much faster decision making" as a private company.
It's unclear whether Mr. Johnson, Heinz's CEO for 15 years, will
remain in his current position. Those discussions haven't taken
place yet, he said at the press conference.
Including debt, the deal is valued at $28 billion, which would
rank as the largest-ever takeover for a pure-food company, topping
the 2000 acquisition of Bestfoods, which includes Lipton tea and
Knorr soups, for $23.2 billion by consumer-brand conglomerate
Unilever NV (UN, UNA.AE). But it is smaller than the nearly $60
billion acquisition of Anheuser-Busch Cos. by InBev SA, a deal that
focused on Anheuser's beverage brands, namely the American brewer's
Budweiser beer, according to Dealogic. The deal rivals the $31.1
billion buyout of RJR Nabisco by Kohlberg, Kravis, Roberts &
Company in 1988, but that deal included tobacco interests.
Berkshire and 3G will each own equity stakes in Heinz of over $4
billion, according to a person familiar with the terms of the deal.
Berkshire will also own about $8 billion of preferred shares, the
person said.
Shares of Heinz, which have been trading at all-time highs,
surged to $72.48 in recent trading, up 20%.
While the partnership with 3G is unusual, the Heinz deal is in
other ways a typical one for Mr. Buffett and Berkshire. Mr. Buffett
has said he values powerful brands and strong management, and in a
statement announcing the deal, he praised Heinz for its "strong,
sustainable growth potential based on high quality standards,
continuous innovation, excellent management and great tasting
products."
Berkshire already owns car insurer Geico, paintmaker Benjamin
Moore, underwear company Fruit of the Loom, and the Dairy Queen
stores, among other brands. In Heinz, he will get a stake in a
packaged-foods company known for its iconic ketchup brand, albeit
one that is now battling weaker North American sales.
The deal is the largest for Berkshire since Mr. Buffett agreed
to acquire railroad Burlington Northern Santa Fe for more than $25
billion in 2009, and completes his goal of making yet another large
deal.
3G Capital, a hedge and private-equity fund with offices in New
York and Rio De Janeiro, is best known for its $4 billion deal to
take Burger King private in 2010, then less than two years later
brought it back on to the public markets. The firm was co-founded
by four principals who sold their previous Brazilian private-equity
firm to Credit Suisse, including Jorge Paulo Lemann, a former board
member of Gillette and Swiss Re, and controlling shareholder in
Anheuser-Busch InBev.
Heinz was first approached about the deal eight weeks ago, Mr.
Johnson said, when 3G Managing Partner Alex Behring and another
partner met with him for dinner. Mr. Johnson said he thought it
they were there to grumble about Heinz as a supplier, because of
3G's majority stake in Burger King, but it turned out they were
interested in an investment. The offer was made a couple weeks
after that.
Mr. Buffett said it was "possible" Heinz could be used as a
vehicle to acquire other brands "over time." Of Mr. Lemann, he
said, "Neither he nor I like to think of this of our last
deal."
Berkshire Hathaway and 3G have pledged to maintain Pittsburgh as
the Heinz global headquarters. Mr. Johnson said keeping the company
there was a condition that was written into the deal contract.
-Lauren Pollock, Drew Fitzgerald and Christian Berthelsen contributed to this article.
Write to Erik Holm at erik.holm@dowjones.com and Paul Ziobro at
paul.ziobro@dowjones.com
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