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Shareholders OK $28 billion sale of Heinz to Buffett, 3G Capital

REUTERS
Shareholders approved a $28 billion acquisition of Pittsburgh ketchup maker H.J. Heinz Co. on Tuesday, April 30, 2013, at a special meeting in Manhattan.

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Tuesday, April 30, 2013, 8:11 a.m.
 

NEW YORK — After nearly 70 years as a publicly traded company, iconic Pittsburgh ketchup and pickle maker H.J. Heinz Co. took a major step Tuesday toward going private and giving up its independence.

Shareholders approved a $28 billion buyout that will eventually turn control of the company over to Warren Buffett's Berkshire Hathaway and Brazilian investment firm 3G Capital.

“In my 15 years as CEO, I have never been more proud of Heinz and our more than 32,000 employees around the world as the company begins the next exciting chapter of its 144-year history,” said Heinz CEO William Johnson.

But going private isn't the only change that's likely for Heinz — in Pittsburgh and around the world.

Speculation remains about how aggressive 3G Capital, which will oversee Heinz management while Berkshire remains passive in the investment, will be in shaking up management and wringing more profit from operations.

The investment firm, run by a trio of Brazilian billionaires, has declined to comment on its plans.

While the new owners have pledged to keep Heinz's global headquarters in Pittsburgh, they intend to accelerate the company's reach in foreign markets, particularly in so-called emerging markets such as Brazil and China.

Heinz was founded in Pittsburgh in 1869 and went public in 1946. While it no longer produces condiments, pickles, baked beans and other food products in Western Pennsylvania, the region is home to about 1,200 Heinz employees who work in the headquarters, an operations center and a research and development facility.

In the first sign of changes that could be on the way once the investment firms take over, 3G earlier this month announced that Johnson will be replaced by Burger King CEO Bernardo Hees once the deal closes. 3G purchased Burger King in 2010, took the fast-food chain private and installed Hees, a 3G partner, as CEO.

Hees cut costs at Miami-based Burger King, revamped its menu and made other changes to improve profitability before the company went public again last year.

While Heinz wants to grow more overseas, its focus in the near term likely will be on paying down $14 billion in debt that Heinz will accumulate in the buyout, a near tripling of its current $5 billion in debt.

Analysts have speculated that based on the debt and 3G's history at other companies, Hees will look to cut costs at Heinz. Whether that leads to job losses in Pittsburgh is unknown.

Johnson could continue with Heinz. The company previously said discussions about Johnson's future would take place after shareholders approved the deal.

Heinz spokesman Michael Mullen said on Tuesday that “no determination has been made about any of Heinz senior management post-closing.”

Johnson and other senior managers of Heinz could receive bonuses and other “golden parachute” compensation if they are let go, totaling $436 million, according to company filings with the Securities and Exchange Commission. Johnson's compensation is $212.7 million if he leaves, including nearly $100 million in stock he was awarded before the buyout was announced.

An advisory shareholder vote on executives' golden parachutes was rejected by shareholders at Tuesday's meeting in Manhattan. The shareholder meeting lasted about seven minutes. The vote to approve the deal was made a day after a Pennsylvania judge dismissed lawsuits by a group of shareholders seeking to block it. They had argued that the company's directors did not perform their fiduciary obligation.

With the shareholder-approval hurdle cleared, the buyers need only to secure regulatory approvals in several foreign countries before closing the deal in late June or early July, Heinz said. Antitrust clearance has been received in the United States. Approvals still are needed in China, the European Union and Russia.

About 95 percent of shares that were cast voted in favor of the deal, in which stockholders will be paid $72.50 a share, the company said. About 60 percent of Heinz's 321 million outstanding shares were voted.

Frank Cunliffe, a shareholder from Philadelphia who attended the meeting, declined to say how he voted. The former Pittsburgh resident who purchased Heinz stock in 1987 said he thought the buyout offer was strong when it was announced in February.

But months later, he said, “the stock market is up 10 percent,” which to his mind erases some of the premium Berkshire and 3G are paying. “I don't think it's as good an offer in April,” he said.

The deal's total value, which includes $5 billion in debt, is one of the biggest ever in the global food industry. The per-share offer represented a 19 percent premium over the closing price of Heinz shares the day before the deal was announced on Feb. 14.

Heinz traditionally holds an annual meeting in Pittsburgh that's attended by hundreds of shareholders, and includes presentations on the company's performance by executives. With only the vote to consider, Heinz held this special shareholder meeting in the Manhattan offices of law firm Davis Polk & Wardwell LLP.

About 20 shareholders showed up in person to observe the proceeding. None voted in person.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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