H. J. Heinz agreed to the buyout by Berkshire Hathaway and 3G Capital. The board of directors has approved the deal and shareholder approval is not required. In a $28 billion transaction that will take the company private, Heinz shareholders will receive $72.50 for each share of common stock they own. In addition, Berkshire Hathaway and 3G will assume Heinz’s outstanding debt. Heinz’s stock price closed at $60.48 on February 13, 2014, so this is a 20 percent gain to shareholders.
On February 14, 2014, Heinz stock skyrocketed past the offering price during pre-market trading. However, it fell back to $72.56 after Warren Buffet (CEO of Berkshire Hathaway) said he wouldn’t pay more than $72.50 per share on CNBC. The stock later started trading for $72.50.
Heinz CEO, William Johnson said, “As a private enterprise, Heinz will have an opportunity to drive further growth and advance our commitment to providing consumers across the globe with great tasting, nutritious and wholesome products.” According to Johnson, this is the largest transaction of any company in the food business. According to Thomson Reuters, it’s significantly lower than the 2007 $61.6 billion spinoff of Kraft Foods from Altria Group and the $60.4 billion InBev acquisition of Anheuser-Busch in 2008.
According to Reuters, this is just the latest deal in a busy start to deal making this year. In the food and beverage industry, there have been $33.8 billion in deals, but this is the strongest start since 2007.
Buffet said, “Heinz has strong, sustainable growth potential based on high quality standards, continuous innovation, excellent management and great tasting products. Their global success is a testament to the power of investing behind strong brand equities and the strength of their management team and processes.”
A condition Heinz wrote into the contract was that it would keep its global headquarters located in Pittsburgh. Alex Behring, managing partner of 3G Capital, confirmed there are no plans to move the company.
According to Johnson, Buffet presented this deal eight months ago and he was obligated to present it to the board. “The board finally concluded the value opportunity to shareholders was too great to pass up,” Johnson said. Berkshire Hathaway and 3G Capital will be equal partners in financing the deal and in Heinz.
This deal values Heinz at 12 times the expected fiscal earnings before interest, taxes, and depreciation making this a very lucrative deal for shareholders. According to a report by Erin Lash (Morningstar analyst) this is in line with other buyouts in the packaged goods business. She also said this deal is 30 percent over the $56 per share fair value target price Morningstar assigned.
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