Pittsburgh-based H.J. Heinz Co. has agreed to a $28 billion deal to be acquired by an investment consortium which includes billionaire investor Warren Buffet. If approved, this will be the largest acquisition ever in the food industry.
The Heinz Board of Directors unanimously approved the acquisition by Berkshire Hathaway and 3G Capital. Under the agreement, Heinz shareholders will receive $72.50 in cash for each share of common stock they own, a 20 percent premium.
Heinz has a long history in Pittsburgh, so President and CEO William Johnson made sure to put one concern to rest at a press conference announcing the deal.
“With an appreciation of this company’s long held values and relationships around the world, Berkshire Hathaway and 3G Capital have pledged to maintain Pittsburgh as Heinz’s headquarters,” he said.
Johnson said Heinz will also continue its philanthropic support in the community. That wasn’t quite good enough for some, who questioned 3G Capital Managing Partner Alex Behring about what assurances he can give that Heinz will not be moved out of Pittsburgh.
“We have said that publicly in a variety of instances, Warren Buffet has said it publicly and it’s on the merger agreement,” said Behring.
Johnson added, “It’s on the contract which is about as strong as it can get, and Warren Buffet gave us his assurances he had to interest in this company leaving Pittsburgh.”
On the surface, this means is Heinz will now be a private company, rather than a public one. The agreement shouldn’t mean big changes, at least in the short-term.
“I don’t know long-term what the employment situation will be. We have 1,200 people in Pittsburgh between our North American operation and our world headquarters operations. I think given the fact that we’re remaining in Pittsburgh and our desire to grow, I think there can be some assurances that a number of people are going to remain committed to and employed by this company,” said Johnson
The transaction will be financed through a combination of cash provided by Berkshire Hathaway and affiliates of 3G Capital, rollover of existing debt, and debt financing that has been committed by J.P. Morgan and Wells Fargo. Financial Advisor with Ameriprise Financial, Pete Schlicth, said overall this is a good deal.
“I think that it’s certainly going to be positive for Berkshire Hathaway and Heinz and its shareholders. I don’t think Heinz could get a better papa than Warren Buffet, and what Warren is looking for is solid companies with solid franchises.”
One thing that makes this agreement unique is the acquisition of Heinz comes at a good time for the company.
“This company is being acquired from a position of strength, our stock has been at an all-time high, we’ve had 30 consecutive quarters of organic top-line growth, this company has never been stronger. That doesn’t mean there won’t be changes going forward, but I think ultimately this will be a platform for doing bigger and better things in this industry,” said Heinz CEO Johnson.
In addition to its ketchup, Heinz makes Classico spaghetti sauces, Ore-Ida potatoes and Smart Ones frozen meals. In Europe it is best known for its beans. Heinz growing global footprint was one of the appealing factors of the deal.
“We’re very excited about the brand, it’s a truly global brand, it has incredible consumer perception around the world, and it’s really a powerhouse brand,” said 3G Capital’s Behring.
As a private company, Heinz will no longer have to answer to Wall Street, and executives will no longer have to focus on quarterly earnings calls. Schlicht said the company will have greater latitude to execute strategies. But, he reiterated that little is likely to change on the surface.
“The bottom line is Heinz is not going away, we will still have Heinz Ketchup not only in western Pennsylvania and the United States, but around the world.”
The acquisition is pending shareholder and regulatory approval, the anticipated closing date is sometime in the third quarter of this year.