Buffett puts money in ketchup, buys Heinz for $23B

Published on NewsOK Modified: February 14, 2013 at 5:51 pm •  Published: February 14, 2013
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The business reaches back to 1869, when Henry John Heinz and neighbor L. Clarence Noble began selling grated horseradish, bottled in a clear glass to showcase its purity. It wasn't until 1876 that the company introduced its flagship product, the country's first commercial ketchup.

Heinz didn't become a public company until years later, in 1946.

Heinz is a prize because it has the type of name recognition that takes years to build, said Brian Sozzi, chief equities analyst for NBG Productions. One testament to the strength of the brand has been the company's ability to raise prices even in competitive markets, he said.

"There isn't going to be another Heinz brand," Sozzi said.

Johnson stressed that Heinz would remain in its native Pittsburgh as a condition of the agreement with 3G and Berkshire Hathaway. The only change will be when Heinz no longer appears in stock listings.

Although 3G Capital has a record of aggressively cutting costs at businesses it acquires, managing partner Alex Behring said Heinz is different because the business is healthy and sales are rising. But that wasn't a guarantee that jobs won't be cut.

The company earned $923.2 million on revenue of $11.65 billion in its last fiscal year.

The more Heinz is able to grow, the "safer people will be," said Johnson, who has been CEO for 15 years.

As for management changes, including his own tenure, Johnson said there have not yet been any discussions.

Buffett did not immediately respond to a message Thursday from The Associated Press. He has recently said that he's been hunting for elephant-sized deals. At the end of last year, he told CNBC that he had about $47 billion in cash available.

Berkshire's biggest acquisition ever was its $26.3 billion purchase of BNSF railroad in 2010.

Last year, Buffett started building a newspaper company with the $149 million acquisition of 63 Media General newspapers and several other small or mid-sized newspapers. Berkshire also bought the Prudential and Real Living real-estate franchises nationwide last fall.

The Heinz deal and the American Airlines-US Airways merger add to an already strong start for merger activity this year. Global merger activity has been tepid since 2007, when $4.6 trillion in deals were announced, according to Dealogic. Last year's total was $2.7 trillion.

The deal is a departure for Berkshire Hathaway. Generally, Buffett prefers to buy entire companies and then allow the businesses to continue operating much the way they did before. Berkshire has also helped finance deals before — most recently during the financial crisis of 2008, when he made lucrative deals for Berkshire when few other companies had cash.

Heinz shareholders will receive $72.50 in cash for each share of common stock they own. Based on Heinz's number of shares outstanding, the deal is worth $23.3 billion excluding debt. Including debt, it's worth about $28 billion.

The price for the deal represents a 20 percent premium over Heinz's closing price of $60.48 on Wednesday. Heinz said the deal was unanimously approved by its board.

"It's our kind of company," Buffett said in the CNBC interview, noting that Heinz's signature ketchup has been around for more than a century. "I've sampled it many times."

___

Funk reported from Omaha, Neb. AP Business Writer Steve Rothwell contributed to this report from New York.



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