Just days ago, the fate of a 144-year-old American icon was being hashed out in a Pittsburgh conference room as executives spoke by phone to representatives of two global billionaires who went by the code names “Owl” and “Goose.”
Owl was Warren E. Buffett, chief executive of Berkshire Hathaway and one of the most admired investors in the world. Goose was Jorge Paulo Lemann, who became one of Brazil’s wealthiest financiers with 3G Capital. What emerged from the talks was a $23 billion takeover of H. J. Heinz, the maker of Heinz ketchup.
The announcement of the deal on Thursday and the involvement of the closely followed Buffett served as confirmation that deal-making spirits have revived in corporate America.
Yet the deal also signals the rising power of investors from once-emerging markets like Brazil. Armed with strong balance sheets and a growing domestic economy, Brazilian entities have emerged as prominent buyers of American companies like Pilgrim’s Pride, the chicken producer. 3G itself bought control of Burger King two years ago, leading an effort to revive the fortunes of the fast-food chain.
In some ways, Heinz fits Buffett’s playbook almost to a T. Its global brand recognition approaches that of Coca-Cola and I.B.M., two companies in which he owns big stakes, and its financial performance is sound. Over the last 12 months, its stock has risen nearly 17 percent.
Born from Henry J. Heinz’s horseradish business, Heinz has become one of the best-recognized food companies in the world, with its bottles of deep-red ketchup sitting on millions of kitchen tables. But it has expanded its offerings to include Ore-Ida French fries and Lea & Perrins Worcestershire sauce.
For the year ended Oct. 28, the company reported $11.6 billion in revenue and $1 billion in profit. It generates a majority of its sales in Europe, but its Asian markets are growing quickly. And it has improved its net sales for eight consecutive fiscal years.
“It is our kind of company,” Buffett told CNBC on Thursday. It fits comfortably alongside companies that Berkshire already owns, including the Dairy Queen chain. But Berkshire and 3G are paying a healthy price for Heinz. Under the terms of the deal, they will pay $72.50 a share, 20 percent higher than the stock’s closing price on Wednesday and 19 percent higher than its record high. Including debt, the transaction is worth $28 billion.
The deal deviates from Buffett’s playbook in several ways. For example, the day-to-day operations of Heinz will be in the hands of 3G.
“Heinz will be 3G’s baby,” Buffett said on CNBC.
Also, Berkshire is splitting ownership of Heinz 50-50 with 3G, with each company putting in about $4 billion in cash. Mr. Buffett will pay an additional $8 billion to receive preferred shares, which will pay him a hefty annual dividend of about 9 percent.
The rest of the deal will be financed with debt arranged by banks.
In some respects, the transaction more closely resembles a leveraged buyout, a type of deal that Buffett has criticized in the past.
But he and Lemann insist that they intend to hold Heinz for the long term, whereas in a private equity deal, the buyers inevitably seek to profit by selling their acquisition. Buffett said that he regarded the food company as a trophy asset like Hanesbrands or the Burlington Northern Railroad, and would love to buy more control over time.
“We may increase our ownership if any members of the 3G Group ultimately want to sell out later,” he said in a telephone interview.
Buffett, 82, says he has studied Heinz as a potential takeover target for years, keeping a file on the company as far back as 1980. For years he heard tales of the ketchup maker from one of its former chief executives, Anthony O’Reilly, at the house of the former Washington Post publisher Katharine Graham…
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