Bottles of Heinz ketchup are displayed at a grocery store in Palo Alto, Calif. PHOTO: Paul Sakuma, AP
H.J. Heinz, the food giant, says it has agreed to be taken private by Berkshire Hathaway and 3G Capital.
Heinz shareholders will receive $72.50 in cash for each share of common stock they own, in a transaction valued at $28 billion, including assumption of Heinz's outstanding debt.
The offer price is a 20% premium to Heinz closing stock price Wednesday of $60.48 a share.
In pre-market trading Thursday the stock soared past the offering price, but after Buffett said on CNBC that he wouldn't pay more than $72.50, the stock fell back to $72.56. Later, it was trading around $72.50.
"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," said Heinz CEO William Johnson.
He says the acquisition, at $28 billion, is the largest of any company in the food business. The Heinz deal ranks below the $61.6 billion spinoff of Kraft Foods from Altria Group in 2007 and the $60.4 billion buyout of Anheuser-Busch by InBev in 2008, according to Thomson Reuters.
The Heinz buyout is just the latest in what's been a busy start to the year for dealmaking. There have been $33.8 billion in deals in the food and beverage industry, strongest start since 2007, says Thomson Reuters.
The deal has been approved by Heinz's board but does require approval by the company's shareholders.
Warren Buffett, chairman and CEO of Berkshire Hathaway, 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."
Heinz will keep its global headquarters in Pittsburgh, a condition that was written into the contract of the deal, Johnson said in a conference with the media Thursday. Alex Behring, managing partner at 3G Capital, reiterated there are no plans to move the company from Pittsburgh.
Johnson said Buffett brought the deal to him eight months ago, and it was his obligation to present the offer to the board. "The board finally concluded the value opportunity to shareholders was too great to pass up," Johnson said. 3G and Berkshire will be equal equity partners in Heinz and in the financing for the deal.
The deal is lucrative for Heinz shareholders as it values Heinz at 12 times the expected fiscal fiscal earnings before interest, taxes and depreciation. That is in line with other buyouts in the packaged goods business, according to a report by Morningstar analyst Erin Lash. The buyout price is also a 30% premium over Morningstar's $56 a share fair value target price, Lash says.
Unlike companies that are often acquired when they are struggling, Heinz is in a strong position. It sees the deal an an opportunity to help it expand more aggressively internationally, Johnson says.
The company reported 22% higher net income of $289.4 million on revenue of $2.8 billion in the most recent quarter, ended Oct. 28.
In addition to Heinz ketchup, the company's brands include Heinz sauces, soups, beans, pasta and infant foods, Ore-Ida potato products, Weight Watchers Smart Ones entrées, T.G.I. Friday's snacks, and Plasmon infant nutrition products. The company's Heinz brand accounts for 40% of the company's revenue, Lash says.
The company has its challenges, especially in North America, Lash says. The company's Ore-Ida brand, for instance, is struggling with private-label competition and new products that haven't been a hit with consumers, she says.