Berkshire Hathaway (BRK.A) and 3G Capital Buy Heinz for $28 Billion
One major deal dominated Wall Street headlines this week - Warren Buffett's Berkshire Hathaway (BRK.A: Charts, News) and 3G Capital acquiring ketchup giant Heinz (HNZ: Charts, News) for $28 billion.
Heinz shareholders will receive $72.50 per share, a 20% acquisition premium. The Heinz acquisition is the largest takeover in the food industry's history. Buffett had previously stated that he was hunting for "elephant-sized deals" that would put Berkshire Hathaway's $47 billion in cash to good use. Daily Chart
Heinz, best known for its ketchup, also makes Classico pasta sauces, Smart Ones frozen meals and Ore-Ida potatoes. For Berkshire, Heinz complements its consumer portfolio, which includes Dairy Queen, See's Candies and food distributor McLane. For Brazil-based 3G Capital, a private equity firm, Heinz complements its majority investment in Burger King. The privatization of the Pittsburgh-based company will help it accelerate its growth into emerging markets. Heinz CEO William Johnson also told the press that privatizing Heinz would allow the company to make decisions more quickly, without the myopic view of reporting quarterly top and bottom line growth. Johnson said that the deal started eight weeks ago, when representatives from 3G Capital, which also work with Heinz distribution partner Burger King, approached him about a possible deal with Berkshire Hathaway. Heinz was founded by Henry John Heinz and L. Clarence Noble in 1869, and first introduced ketchup in 1876. With its long history, Heinz has several prolific shareholders, including Secretary of State John Kerry and his wife, who stand to make approximately $1 million from the sale. Heinz, which generated $11.6 billion in annual revenue, has steadily expanded into overseas markets for growth. The company acquired Chinese company Foodstar, which creates soy sauce and fermented bean curd in China - two major condiments in traditional Chinese food. The company now expects sales from emerging markets to account for approximately a quarter of its revenue this year. NBG Productions analyst Brian Sozzi stressed the strength of Heinz's brand and the pricing power that it possessed. "There isn't going to be another Heinz brand,'' Sozzi stated. It has a durable competitive advantage." Heinz controls 59% of the ketchup business in the United States and 26% internationally. Heinz's North American consumer products division is its most profitable, but sales in its Asia/Pacific region grew by 11% in fiscal 2012 - primarily attributed to high demand or sauces and infant foods in China. Europe remains its weakest region, which is expected to weigh on earnings throughout fiscal 2013. Shares of Berkshire Hathaway rose slightly after the announcement, while Heinz's peers Campbell Soup (CPB
) also edged up on buyout speculation. Berkshire Hathaway A and B shares both trade at 18.5 times forward earnings, with a 5-year PEG ratio of 1.58. Neither stock pays a dividend, but only the A class shares, worth nearly $150,000 per share, have voting rights. Other News About BRK.A Buffett, Brazil's 3G Team Up for $23 Billion Heinz Buyout
Heinz gets taken private in a history-making acquisition. Buffett's Firm Dips Into $23B Heinz Ketchup Deal
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Published on Feb 15, 2013
By Leo Sun