CORRECTED-UPDATE 6-Heinz $23 bln sale to Buffett, 3G to spur consolidation

Thu Feb 14, 2013 1:55pm EST

(Corrects all-time high for shares, fourth-to-last paragraph)
    * Paying $72.50 per share for Heinz
    * Buffett says Berkshire putting up $12 bln-13 bln cash
    * Price is a 19 pct premium to Heinz pvs all-time high
    * Heinz shares soar 20 pct

    By Ben Berkowitz and Martinne Geller
    Feb 14 (Reuters) - Warren Buffett's Berkshire Hathaway
 and private equity firm 3G Capital will buy ketchup and
baby food maker H.J. Heinz Co for $23.2 billion in cash,
a deal that combines 3G's ambitions in the food industry with
Buffett's hunt for growth.
    Including debt assumption, Heinz valued the transaction,
which it called the largest in its industry's history, at $28
billion. Berkshire and 3G will pay $72.50 per share, a 19
percent premium to the stock's previous all-time high. 
    Heinz shares actually rose slightly above the offer price,
although Buffett cautioned he had no intention of raising his
bid.
    Analysts said the deal could be the first step in a broader
wave of mergers for the food and beverage industry.
    "Maybe for the consumer staples group in general this may
start some talk about consolidation. Even corporate entities are
flush with cash, interest rates are low, it would seemingly make
sense," Edward Jones analyst Jack Russo said.
    Companies like General Mills and Campbell Soup
 - itself long seen as a potential Heinz merge partner -
rose on the news.
    
    BUFFETT HUNTING GROWTH
    The surprise purchase satisfies, at least in part, Buffett's
hunt for growth through acquisition. He was frustrated in 2012
by the collapse of at least two deals in excess of $20 billion
and said he might have to do a $30 billion deal this year to
help fuel Berkshire's growth engine.
    In this case, Berkshire is putting up about $12 billion to
$13 billion cash, Buffett told CNBC, leaving it ample room for
another major transaction. 
    Berkshire Hathaway already has a variety of food assets,
including the Dairy Queen ice cream chain, chocolatier See's
Candies and the food distributor McLane. Buffett, famed for a
love of cheeseburgers, joked he was well acquainted with Heinz's
products already and that this was "my kind of deal."
    It does represent an unusual teaming of Berkshire with
private equity, though; historically, Buffett's purchases have
been outright his own. He and 3G founder Jorge Paulo Lemann have
known each other for years, and Buffett said Lemann approached
him with the Heinz idea in December.
    One Berkshire investor said he had mixed feelings about the
deal because of the limited growth prospects domestically.
    "We're a little hesitant on the staple companies because
they don't have any leverage in the United States," said Bill
Smead, chief investment officer of Smead Capital Management in
Seattle. But at the same time, he said, Buffett was likely
willing to accept a bond-like steady return even if it was not
necessarily a "home run."
    
    
    3G EXPANDS
    For 3G, a little-known firm with Brazilian roots, the
purchase is something of a natural complement to its investment
in fast-food chain Burger King, which it acquired in
late 2010 and in which it still holds a major stake.
    Lemann, a globe-trotting financier with Swiss roots, made
his money in banking and gained notoriety for helping to pull
together the deals that ultimately formed the beer brewing giant
AB InBev. 
    3G's Alex Behring runs the fund out of New York. He appeared
at a Pittsburgh news conference on Thursday with Heinz
management to discuss the deal - and to reassure anxious local
crowds that the company will remain based there and will
continue to support local philanthropy.
    But at the same time, Behring said it was too soon to talk
about cost cuts at the company. Unlike Berkshire, which is a
hands-off operator, 3G is known for aggressively controlling
costs at its operations.
    
    PITTSBURGH ROOTS
    Also to be determined is whether CEO Bill Johnson would stay
on. Only the fifth chairman in the company's history, Johnson is
widely credited with Heinz's recent strong growth.
    "I am way too young to retire," he told the news conference,
adding that discussions had not yet started with 3G over the
details of Heinz's future management.
    The company, known for its iconic ketchup bottles, Heinz 57
sauces as well as other brands including Ore-Ida frozen
potatoes, has increased net sales for the last eight fiscal
years in a row. 
    Heinz said the transaction would be financed with cash from
Berkshire and 3G, debt rollover and debt financing from J.P.
Morgan and Wells Fargo. Buffett told CNBC that Berkshire and 3G
would be equal equity partners. 
    Heinz shares soared 19.9 percent, or $12.06, to $72.54 on
the New York Stock Exchange. 
    A week ago the stock hit a long-term high of $61 a share -
near records it set in 1998 - having risen almost 5 percent this
year and nearly 12 percent since the beginning of 2012. 
    The deal is also a potential boon for new U.S. Secretary of
State John Kerry, whose wife Teresa is the widow of H.J. Heinz
Co heir John Heinz. Kerry's most recent financial disclosures
from his time in the U.S. Senate show a position in Heinz shares
of more than $1 million, although the precise size is unclear. 
    Centerview Partners and BofA Merrill Lynch were financial
advisers to Heinz, with Davis Polk & Wardwell LLP the legal
adviser. Moelis & Company was financial adviser to the
transaction committee of Heinz's board and Wachtell, Lipton,
Rosen & Katz served as its legal adviser. 
    Lazard served as lead financial adviser. J.P. Morgan and
Wells Fargo also served as financial advisers to the investment
consortium. Kirkland & Ellis LLP was legal adviser to 3G
Capital, and Munger, Tolles & Olson LLP was legal adviser to
Berkshire Hathaway. 

 (Editing by Maureen Bavdek and Leslie Gevirtz)
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.