Buffett and 3G hungry for Heinz deal

The acquisition of Heinz by Warren Buffett and 3G Capital is a landmark moment in the journey of a company that began selling horse­radish in a Pennsylvania farming town in 1869.

Heinz went bankrupt just a few years later but went on to become one of the world’s best-known brands.

Yesterday’s $28 billion (€21 billion) acquisition will both bring Heinz back to its beginnings as a private company and give it a chance to become more global at a time when the US food industry is undergoing rapid transition.

“It’s an opportunity to build this brand more globally but fundamentally the company is returning to its roots,” said William Johnson, chief executive of Heinz, yesterday.

Heinz is being acquired at a moment of strength for the company but it follows a recent period of investor unrest about its performance. In 2006, Nelson Peltz, the activist investor who now sits on its board of directors, took a 5 per cent stake in the company and pushed Johnson to cut costs, streamline operations and reinvest in marketing.

In recent years, Heinz has been something of a trailblazer in its own right, actively seeking deals in Brazil and China and repackaging its core ketchup to make it easier for Americans to dress French fries in new ways.

However, the company remained under pressure to unload some of its struggling brands and its frozen foods business, and analysts say that going private could aid in such disposals.

People familiar with the Heinz transaction said 3G Capital was hungry for a new deal, and set its sights on Heinz. The group approached Buffett about joining forces last December, and discussions with Heinz picked up in earnest in the past six weeks.

“The value opportunity for the shareholders was too good to pass up,” Johnson said. “This is the largest transaction in history for a global food business.”

For Buffett, the deal, which is expected to close during the third-quarter of this year, is a chance to further cement his legacy.

“Buffett is trying to make the non-insurance businesses more significant,” says Vitaliy Katsenelson, a value investor and long-time Buffett watcher. “Buffett is willing to pay so much more than he would in the past, but he wants bulletproof businesses that can’t be destroyed.”

Heinz appears to be a classic fit for Mr Buffett, who likes consumer companies and has taken equity stakes in Coca-Cola. – Copyright: 2013 The Financial Times Limited