Berkshire Joins 3G Capital to Buy Heinz in $23 Billion Deal

The buyers will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement distributed by Business Wire today. The deal will be financed by cash from Berkshire and affiliates of 3G, plus the rollover of existing debt. The deal is valued at about $28 billion including debt, according to the statement.

 

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.”

 

Buffett, 82, has been seeking deals after the cash pile at Omaha, Nebraska-based Berkshire 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. 

 

Berkshire’s investment will include a preferred stake of $8 billion, which gets an annual dividend of 9 percent, Buffett’s firm said in a regulatory filing. That would be equal to about $720 million in payouts per year, compared with the annual cost of Heinz's regular quarterly dividend of about $660 million, according to filings and data compiled by Bloomberg.

3G will join Berkshire in getting an equity stake of more than $4 billion, according to three people familiar with the deal. The people asked not to be identified because some of 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. 

“Looks like the deal will involve approximately $5 billion in new debt which would almost double Heinz’s debt load,” Anthony Valeri, a market strategist at San Diego-based LPL Financial said in a telephone interview. “I think the CDS move reflects uncertainty over exactly how much more levered Heinz will be after the transaction.”

Heinz, led by Chief Executive OfficerBill Johnson since 1998, had gained 17 percent in the past 12 months as it boosted 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. 

The deal is the largest ever in the food industry, the companies said. The buyers are paying about 14.6 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the median of 7.6 times Ebitda in a survey of more than 100 comparable deals worldwide. 

 

Source: Bloomberg