On February 14, the news broke that Berkshire Hathaway, the conglomerate run by Warren Buffett, is planning to purchase H.J. Heinz—and its iconic Heinz ketchup—for $23 billion. Joining Berkshire Hathaway in the acquisition is 3G Capital Management, a Brazilian-backed investment firm that owns a majority stake in Burger King. The deal marks a harmonious pairing between burgers and ketchup.
Heinz, an All-American Brand
Heinz is a profitable company whose stock has risen nearly 17% over the past year. Although Buffett claims to have been eyeing Heinz since 1980, the deal appears to have originated with 3G, writes Michael de la Merced in the New York Times.
Jorge Paulo Lemann, one of 3G’s main backers, approached Buffett about teaming up to purchase Heinz about two months before the deal was announced. After Buffett got on board, the two companies approached Heinz CEO William R. Johnson about buying the company.
Berkshire and 3G will each pay about $4 billion in cash for Heinz; Berkshire will also pay $8 billion for preferred shares. JPMorgan Chase and Wells Fargo will contribute additional debt financing. According to Buffett, “Heinz will be 3G’s baby”—that is, 3G will supervise Heinz’s operations. The food company will remain based in Pittsburgh, its home for over 120 years, writes the Times.
The Deal
The deal has been received as another sign that the dormant world of mergers and acquisitions (M&As) is picking up steam worldwide, according to the Times.
In recent weeks, we discussed the planned $24 billion buyout of computer manufacturer Dell. M&A prices have yet to reach the heady days of the pre-financial crisis boom. Yet due to improving confidence among investors and executives, suggests that international negotiations such as the Heinz deal are picking up steam.
The task for those who might be tempted to follow in Buffett’s footsteps and forge an acquisition of their own? Avoid irrational exuberance, perform thorough due diligence, and estimate the value of companies on the market with extreme caution.
