Warren Buffet and the food industry: big and getting bigger
A $28 billion offer for H.J. Heinz Co. may be the largest takeover of a pure food producer ever. Warren Buffet’s Berkshire Hathaway partnered with private-equity firm 3G Capital on the announced deal, which is already taking some interesting twists.
For one, analysts have pointed out that it’s unusual for Berkshire Hathaway to partner with a private equity firm on its deals. Given the cash pile Berkshire had and still has for acquisitions it doesn’t need partners. Some speculate that the private equity’s firm expertise in operations and financial restructuring is integral to the future strategy for Heinz.
The 2008 financial crisis put a tremendous squeeze on the retail food & beverage industry, accelerating trends toward grocery private label goods, new retail formats and company restructurings based on increasing automation of service industries. Experts say that many hospital chains are ripe for the restructuring that follows from an uptake in merger & acquisition activity. Restructurings at major American corporations based on globalization will continue.
While some reports say the latest announced turnaround is starting to take hold, 3G Capital’s involvement in the horror that is today’s Burger King may not be a good sign. For those not following the story, media sources indicate Burger King has been through a series of acquisitions each of which enriched the seller while denuding the company of capital for continuing investment. In any case, few today would rank Burger King as a rival to McDonalds, as had been the case not too many years ago.
Another curious aspect of the deal is the amount of trading in stock options and other vehicles transacted just prior to the announcement of the deal, which seems to indicate that news of the deal had leaked, leading to considerable illegal trading based on insider information.
Most curiously, a day after the deal was announced, the U.S. Security & Exchange Commission froze a Swiss bank account that had been used to make a $90,000 investment in Heinz just prior to the announcement. Immediately after the announcement, the investment’s value skyrocketed to $1.8 million. The FBI is also investigating. In a recent court hearing, SEC lawyers confirmed they haven’t been able to identify who used the until-recently-dormant account to initiate the transactions.
Thus, at a recent court hearing, the defendant’s table was unoccupied. The judge commented that the perpetrators could run, but they couldn’t hide their ill-gotten gains.
Under the terms of the merger agreement, which has been unanimously approved by Heinz’s Board of Directors, Heinz shareholders will receive $72.50 in cash for each share of common stock they own, in a transaction valued at $28 billion, including the assumption of Heinz’s outstanding debt. The per share price represents a 20% premium to Heinz’s closing share price of $60.48 on February 13, 2013, a 19% premium to Heinz’s all-time high share price, a 23% premium to the 90-day average Heinz share price and a 30% premium to the one-year average share price.