Sunday 19 August 2018

Buffett teams up with private equity firm in $25bn Heinz deal

Billionaire investor Warren Buffett. Photo: Getty Images
Billionaire investor Warren Buffett. Photo: Getty Images

Peter Flanagan and Ben Berkowitz

WARREN Buffett is to take control of the food giant HJ Heinz in a deal worth nearly $25bn (€18.2bn).

Mr Buffett's investment firm Berkshire Hathaway and 3G Capital will buy the ketchup and baby food-maker for $23.2bn in cash, a deal that combines 3G's ambitions in the food industry with Mr Buffett's hunt for growth.

The move will take one of the highest-profile firms off the US stock market. Famous for its 57-plus brands, Heinz became one of the best-known names in Ireland after Sir Anthony O'Reilly took over as chief executive in 1979.

Sir Anthony, a shareholder in the company, stepped down as CEO in 1998 and chairman in 2000. He was the first non-family member to chair the business.


Including debt assumption, Heinz valued the transaction, which it called the largest in its industry's history, at $28bn. Berkshire and 3G will pay $72.50 per share, a 19pc premium to the stock's all-time high.

For Mr Buffett, the deal represents an unusual teaming with private equity for a major acquisition because historically, his purchases have been outright his own.

He said 3G approached him with the idea in December and that it was "my kind of deal".

He has been on the hunt for a major purchase worth $20bn or more.

Berkshire's piece of the Heinz purchase was $12bn to $13bn cash, for a mix of common and preferred equity.

The last time Mr Buffett did a deal like this was in 2008, when Berkshire helped fund Mars's $23bn purchase of Wrigley.

For 3G, a little-known firm with Brazilian roots, the buy is something of a natural complement to its investment in fast-food chain Burger King, which it acquired in late 2010 and in which it still holds a major stake.

3G will be Heinz's operator after the deal closes, and the company will remain headquartered in Pittsburgh.

Heinz said the transaction would be financed with cash from Berkshire and 3G, debt rollover and debt financing from JP Morgan and Wells Fargo.

Equity partners

Mr Buffett said Berkshire and 3G would be equal equity partners. Heinz shares soared 20pc to $72.59 in early New York Stock Exchange trading, above the offer price. Mr Buffett has already indicated he will not increase his bid.

The company, known for its iconic ketchup bottles as well as for other brands including Ore-Ida frozen potatoes, has increased net sales for the last eight fiscal years in a row.

Current chief executive Bill Johnson, who was Sir Anthony's long-time deputy, is set to earn as much as $100m as part of the deal.

Whether he stays on or not is an open question. Mr Buffett said it would be up to 3G to decide whether Mr Johnson would be retained.

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", Tom Russo, a partner at Berkshire investor Gardner Russo & Gardner said in a phone interview.

"It will not be hard to service the debt." (Additional reporting by Reuters)

Irish Independent

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