Berkshire joins 3G Capital to buy Heinz in $28B deal

| Thursday, Feb. 14, 2013, 8:06 a.m.

Billionaire investor Warren Buffet is making a $28 billion play for H.J. Heinz Co., a name synonymous with ketchup and a part of the fabric of Pittsburgh for more than a century.

Buffet joined with Brazilian investor Jorge Paulo Lemann on Thursday to make a bid of cash and debt for the company founded in Sharpsburg more than 140 years ago by Henry J. Heinz. The deal is the biggest-ever transaction in the global food industry.

The Downtown-based company, whose name can be found on many landmarks in the city, will remain based in Pittsburgh, Heinz CEO William Johnson told reporters during a news conference on Thursday at its PPG Place headquarters.

“We are committed to keeping the headquarters here in Pittsburgh,” said Alex Behring, managing partner of 3G Capital, which along with Warren Buffett's Berkshire Hathaway Inc. will pay Heinz shareholders $72.50 a share, or about $23 billion in cash, and will assume debt of about $5 billion.

Johnson said the acquisition, which requires approval from shareholders and regulators, is an opportunity to grow the Heinz business around the world, which would benefit the company's headquarters in Pittsburgh and its 1,200 local employees.

Johnson said talks with Berkshire Hathaway and 3G Capital started about eight weeks ago when Behring came to Pittsburgh to discuss a deal.

The investors presented a “compelling” offer and intend to use Heinz “as a platform to get bigger around the global food industry,” Johnson said.

Heinz's board unanimously approved the deal, which is expected to close in the third quarter, Johnson said.

Buffett has been seeking deals after the cash pile at Omaha-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. Lemann, 73, is worth about $19 billion based on holdings in Anheuser-Busch InBev NV and Burger King Worldwide.

“Heinz has strong, sustainable growth potential based on high quality standards, continuous innovation, excellent management and great tasting products,” Buffett, 82, said in a statement.

By taking the company private, Johnson said, Heinz will have the flexibility to make quicker decisions without the pressure of satisfying investors with quarterly earnings reports.

Heinz, with sales of $11.6 billion in its 2012 fiscal year, is a major player in the global food industry. Emerging markets, such as Brazil, Russia, India, China and Indonesia, are driving growth, accounting for 21 percent of sales last year. Those sales are expected to double to $5 billion during the next three to five years, the company has said.

Buffett and Heinz Director Nelson Peltz appeared on cable network CNBC on Thursday morning and said Johnson would retain his post as CEO. But Johnson told reporters in Pittsburgh that there have been no discussions about his future at the company.

Heinz elected billionaire Peltz to its board in 2006 in a six-month proxy fight. Peltz had been pushing the company to trim costs and sell assets to boost its share price.

The acquisition price of $72.50 a share represents a 19 percent premium to Wednesday's closing price of $60.48. The stock closed on Thursday at $72.42.

Heinz's shares have gained 17 percent in the past 12 months as it boosted overseas sales.

Berkshire will spend $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks, Buffett told CNBC. The deal also will be financed with about $10 billion in cash from 3G Capital affiliates and the rollover of existing debt.

3G Capital will oversee Heinz operations, Buffett told CNBC, praising the company's record with Burger King, which it acquired in 2010 and took public last year.

“Any partnership where I don't have to do the work is my kind of partnership,” Buffett said.

Alex Nixon is a staff writer forTrib Total Media. He can be reached at 412-320-7928 or Bloomberg News and The Associated Press contributed to this report.

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