Margareta Pagano: The Goose said to the Owl: Fancy a Penguin?
When two billionaire friends met on a business flight, the talk turned to birds and business deals. The $28bn swoop on Heinz was the result
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Sunday 17 February 2013
Having a Brazilian just took on a whole new meaning. Each time you squirt ketchup on your chips or put beans on the toast it's going to be courtesy of one of Brazil's richest men, Jorge Paulo Lemann, one of the country's shrewdest deal-makers and a former tennis champion.
He is clubbing together with one of America's wealthiest men, Warren Buffett, and his Berkshire Hathaway group, to pay $28bn (£18bn) to take the HJ Heinz empire private.
Mr Lemann runs and controls a big chunk of 3G Capital, a private equity company which owns Burger King and has an even chunkier stake in the world's biggest brewer, Anheuser-Busch InBev.
Aged 73, he is not yet as old as Mr Buffett, nor does he have quite as much money – only $18bn or so – but he's the one driving this takeover. Indeed, the deal deviates in many ways from Mr Buffett's usual style as it's more like a leveraged buyout – the sort of transaction he has criticised in the past.
Mr Lemann and Mr Buffett are paying $72.50 per share, which is already a 20 per cent premium to the closing price valuing Heinz at $23bn. In addition, they are paying off $5bn in debt. Heinz is being split half-half between 3G and Berkshire, with each company putting in about $4bn in cash for the equity while the rest is being financed with new debt. Mr Buffett is paying another $8bn to get preferred stock, which will give an annual dividend of about 9 per cent.
The structure may not be true to type, but it is a classic Buffett business: everyday food brands turning over cash like a slot machine.
Heinz started with horseradish sauce in 1869, and now has 150 brands that are either in the number one or two slots in the world; that's good branding. He's had a file on Heinz since 1980. But it was only when Mr Lemann, whose codename during the deal was Goose, and Mr Buffett, who was known as the Owl, met up again flying together on a business trip in December last year that they hatched the Heinz bid – codenamed Penguin.
The birds get on well and have known each other since sitting on the Gillette board a decade ago. The roles are clear: Mr Lemann's 3G managers will run the Heinz operations while Mr Buffett is there to enjoy the ride. In an interview with CNBC on Thursday, the octogenarian Sage of Omaha was on form, saying: "It's a great partnership for us, and any partnership where I don't have to do the work is my kind of partnership." Believe that if you will.
What everyone in America now wants to know is whether this strike is the start of a new wave of corporate activity. Of course, Mr Buffett said no; but that's because he still has another $27bn in the bank to go shooting for more elephants, and doesn't want to push up prices. But investors think so – food stocks shot up on the news.
The other big question is what 3G will do with Heinz. Mr Buffett says the management team will stay in place, but that's hard to see. One of the big fears is that 3G's team will want to improve margins by slashing costs and cutting jobs – which is what corporate activist, Nelson Peltz, has been urging the board to do for years.
As well as shaking up Heinz, the impact of the takeover will spill over into US political life as the takeover makes Teresa Heinz Kerry, wife of John Kerry, the Secretary of State, even richer. Married to the late John Heinz III, she inherited his fortune when he died, and stands to make millions more, so it will be fascinating to see whether Mr Kerry does run for president in 2016.
It's not new for presidential candidates to be backed by family money but one backed with 57 varieties could make for a spicy campaign.
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