Heinz sells for $23 billion to Buffett’s Berkshire, 3G

An H.J. Heinz Co. factory in Pittsburgh churns out products Thursday. The Heinz corporate headquarters is expected to remain in Pittsburgh after the company is sold.
An H.J. Heinz Co. factory in Pittsburgh churns out products Thursday. The Heinz corporate headquarters is expected to remain in Pittsburgh after the company is sold.

— Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital have agreed to buy H.J. Heinz Co. for about $23 billion, ending the independence of the food and condiments maker that traces its roots to the 1860s.

The deal is the largest ever in the food industry, the companies said.

The buyers will pay $72.50 a share, compared with Wednesday’s closing price of $60.48. Berkshire will spend about $12 billion to $13 billion on the deal. The transaction is worth around $28 billion, including the assumption of debt, according to a statement from Heinz.

Heinz benefits from “very powerful consumer goodwill in the developed markets and a very early start in China and India, two of the largest developing markets,” said Tom Russo, a partner at Berkshire investor Gardner Russo & Gardner. “It will not be hard to service the debt.”

Buffett, 82, has been seeking deals after the cash pile at Berkshire, based in Omaha, Neb., climbed to more than $45 billion. He has previously wagered on consumer products through equity investments in Coca-Cola Co., and he helped finance Mars Inc.’s purchase of chewing-gum maker Wm. Wrigley Jr. Co.

Brazil’s Lemann, 73, is worth about $19 billion based on holdings in Anheuser-Busch InBev NV and Burger King Worldwide Inc., according to the Bloomberg Billionaires Index.

Heinz shares climbed $12.02, or 20 percent, to close Thursday at $72.50 in New York trading. Berkshire advanced 1 percent.

Consumer stocks including Campbell Soup Co., General Mills Inc. and J.M. Smucker Co. also rallied. Campbell, the world’s largest soup-maker, jumped 1.8 percent. General Mills, the maker of Cheerios cereal, surged 2.8 percent, and Smucker rose 1.7 percent.

Berkshire and 3G will each have more than $4 billion in equity in Heinz, and Buffett’s firm will also take a preferred stake of $8 billion, which gets an annual dividend of 9 percent, according to three people familiar with the deal. The people asked not to be identified because the terms are private.

The deal will also be funded by the rollover of existing debt and debt financing committed by JPMorgan Chase & Co. and Wells Fargo & Co., according to the statement.

Heinz, led by Chief Executive Officer Bill Johnson since 1998, had gained 17 percent in the past 12 months as it increased sales in developing economies.

Heinz in November said fiscal second-quarter sales in emerging markets rose 13 percent, excluding the effects of foreign-currency fluctuations and acquisitions or divestitures.

Heinz elected billionaire Nelson Peltz to the board in 2006 after a six-month proxy fight.

Peltz had been pushing the company to trim costs and sell assets to increase its share price.

3G will oversee the operations of the business, Buffett told CNBC, praising the investment company’s record with Burger King, which it acquired in 2010 and then took public last year.

He said he expects Johnson to remain in charge and that 3G will have the final say.

“Any partnership where I don’t have to do the work is my kind of partnership,” Buffett said. Buffett is worth more than $50 billion, according to the Bloomberg Billionaires Index.

Buffett and Lemann served together as directors of razor-maker Gillette Co. Buffett resigned from that board in 2003.

Heinz will retain its corporate headquarters in Pittsburgh, according to the statement. The company traces its roots back to 1869, when Henry John Heinz and neighbor L. Clarence Noble began selling grated horseradish, according to Heinz’s website. The company introduced its famous tomato ketchup in 1876.

“Buffett’s affection for strong brand names” make the company a good fit for his portfolio, said Christopher Growe, an analyst at Stifel Nicolaus & Co.

There have been more than $280 billion in announced deals this year, according to data compiled by Bloomberg. That’s 26 percent more than in the same period a year earlier.

Information for this article was contributed by Kevin Orland, Julie Alnwick and Leslie Picker of Bloomberg News.

Business, Pages 27 on 02/15/2013

Upcoming Events