What's Next for H.J. Heinz?

Some concerns over half-owner, profit-conscious Brazilian investment firm.

By Dave Fusaro, Editor in Chief

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Folks in the financial world and those living in Pittsburgh or working for Heinz are surfing the Internet for information on 3G Capital, the Brazilian investment firm that will share ownership of H.J. Heinz Co. with Berkshire Hathaway.

On February 14 it was announced Berkshire Hathaway, led by revered investor Warren Buffett, and 3G will pay Heinz shareholders $72.50 in cash for each share of common stock, a 20 percent premium to Heinz's closing price on Feb. 13 and 19 percent more than the all-time high share price. (See our reporting of the announcement) The transaction value of $28 billion, including the assumption of Heinz's outstanding debt, would make this one of the biggest takeovers in the history of the North American food industry.

While identified in reports as a New York investment firm, 3G is firmly rooted in Brazil. Three of its principals sold their Banco Garantia in 1998 to Credit Suisse First Boston. It officially became 3G Capital in 2004 with principals Jorge Paulo Lemann, Carlos Alberto Sicupira, Marcel Hermann Telles and Roberto Thompson Motta. It acquired Burger King in 2010 for $4 billion, first restructuring it and then returning it to the stock market, and helped engineer the growth of InBev including that Belgian firm's acquisition of Anheuser-Busch in 2008.

"Heinz is as important to the Pittsburgh area as Anheuser-Busch is to St. Louis," noted the Pittsburgh Tribune-Review. "Four years after 3G Capital's InBev engineered a $52 billion takeover of the nation's largest beer maker in 2008, the brewery employs fewer people, takes longer to pay suppliers and gives less to charities."

Even before the acquisition, Heinz had announced intentions to sell its China frozen food business, Shanghai LongFong Foods, although a buyer has not been named. And late last year, Heinz sold its U.S. Foodservice frozen desserts business.

By the way: Heinz was Food Processing's 2011 Processor of the Year.

"With Heinz stock recently at an all-time high and 30 consecutive quarters of organic topline growth, Heinz is being acquired from a position of strength," said Heinz Chairman, President and CEO William Johnson. "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."

Buffett, who is 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."

Alex Behring, managing partner at 3G Capital said, "We have great respect for the Heinz brands and the strong business that management and its employees operate around the world. We approached Heinz to explore how we might work together to expand the value of this storied brand. We fully recognize Heinz's value and heritage and look forward to working together with Heinz's employees, suppliers and customers as we invest in and support the company's ongoing global growth efforts."

The acquirers have pledged to maintain Pittsburgh as Heinz's global headquarters, and to fulfill and continue its philanthropic support of community initiatives and related investments. Heinz, however, has no manufacturing facilities left in its hometown, but does have its global R&D center in a suburb.

The transaction is subject to approval by Heinz shareholders, receipt of regulatory approvals and other customary closing conditions, and is expected to close in the third (calendar) quarter of 2013.

H.J. Heinz's Johnson, by the way, could reap a $213 million payout if he leaves the company after the transaction, reports the Pittsburgh Tribune-Review. He's been president and CEO for 15 years. If that amount is true, the size of Johnson's "golden parachute" would be the seventh largest ever awarded an American CEO. Tops on the list is Jack Welsh, who got $417 million in 2001 when he retired from General Electric Co.

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