The biggest ever takeover in the food industry: Warren Buffett buys Heinz in record $28bn deal

Warren Buffett has agreed a $28bn (£18bn or R252bn) deal to buy the ketchup and baked beans giant, HJ Heinz, among the biggest ever takeover in the food-bev industry.

Buffett’s Berkshire Hathaway and 3G Capital, the investment firm which in 2010 bought Burger King, will pay $72.5 per Heinz share, 20 per cent more than the company’s closing share price on Wednesday 13 February, to buy the company.

The deal, which includes $5bn of Heinz’s outstanding debt, values the business at $23bn. All told, Heinz employs some 32 000 people worldwide, with its products enjoying bestselling status in more than 50 countries.

“Heinz has strong, sustainable growth potential based on high quality standards, continuous innovation, excellent management and great tasting products,” said Buffett, who because of his track record of making successful investments is often called the ‘Sage of Omaha,’ a reference to his hometown and the site of Berkshire’s headquarters.

“Their global success is a testament to the power of investing behind strong brand equities and the strength of their management team and processes. We are very pleased to be a part of this partnership.”

Given the company’s roots in Pittsburg – the business was founded in 1869 in the Pittsburg suburb of Sharpsburg by Henry John Heinz – the buyers have pledged to keep the company’s headquarters in the city.

“The Heinz brand is one of the most respected brands in the global food industry and this historic transaction provides tremendous value to Heinz shareholders,” Heinz CEO William Johnson said as the company’s share price rocketed by 20 per cent in early trading on Wall Street. “We look forward to partnering with Berkshire Hathaway and 3G Capital, both greatly respected investors, in what will be an exciting new chapter in the history of Heinz.”

3G Capital, Berkshire’s partner in the deal, is backed by Jorge Paulo Lemann, the Brazilian-Swiss businessman and philanthropist who got to know  Buffett in the late 90s, when the two men were on the board of Gillette.

Lemann, who is 3G’s principal and controlling shareholder, and board member of the brewing giant Anheuser-Busch InBev, has a net worth as of March last year of around $12bn, according to the Forbes rich list.

Analysts say Heinz is a classic Buffett target. The company makes everyday products, has strong and stable profit margins and is a great American brand that has been around for more than a century. In those respects, it looks like Gillette, one of Buffett’s most famous successes: a buy-and-hold investment in which the steady compounding of returns over many years does the hard work.

Additional reading:

In buying Heinz, Warren Buffett went into business with the richest man in Brazil

The 10 Biggest Food Deals

The food industry has long been a fertile area for deal activity. Companies that can offer well-known brands and strong steady cash flows are attractive to both strategic buyers and private equity firms. Food, along with tobacco, was at the heart of one of the fiercest corporate takeover battles — the fight for RJR Nabisco, as famously chronicled in “Barbarians at the Gate.”

The acquisition announced on Thursday by Warren Buffett and 3G Capital Management ranks No 4 among food deals, at $27.28 billion, which includes debt but is net of cash, according to Thomson Reuters data. The spinoff of Kraft Foods from Altria in 2007 ranks as the largest food deal.

Here are the biggest, according to Thomson Reuters…