Group to buy Heinz for $28 billion

PITTSBURGH - Before the stock markets opened Thursday, Pittsburgh's world-famous ketchup maker, H.J. Heinz Co., announced that it had agreed to be acquired for $28 billion in cash and debt by an investment partnership between Warren Buffett's Berkshire Hathaway and 3G Capital, owner of such well-known brands as Burger King and Budweiser.

Heinz had been the subject of takeover rumors for years, as many thought it was a small enough and tempting enough player in the food business to be swallowed by another company. And with money available at low interest rates, some think it might be followed by more mergers in the industry.

The flip from a public to private company might allow Heinz to more easily shed some of its slowing businesses, said Alexia Howard, senior analyst at BernsteinResearch, in a report to investors Thursday. "The move to private ownership could facilitate more restructuring and the sale of one or more of its businesses," she wrote.

The negotiations, which Heinz CEO and president Bill Johnson said Heinz did not initiate, went back and forth. Bloomberg News reported Thursday that an offer made Jan. 14 was for $70 a share, but that it was rejected and that the bidders came back with more. A Heinz spokesman declined comment on the report.

In the end, Johnson said the price - $72.50 a share - was good enough that he felt obligated to take it to the board. "The value opportunity for shareholders was too great to pass up," he said. The company's board approved the sale Wednesday night.

The offered price represents a 20 percent premium to Heinz's closing share price of $60.48 Wednesday and a 30 percent premium to the one-year average share price. On Thursday, the shares closed at $72.50, up $12.02 or almost 20 percent.

The transaction will be financed through a combination of cash provided by Berkshire Hathaway and affiliates of 3G Capital, rollover of existing debt, and debt financing committed by JPMorgan and Wells Fargo.

Employees in Pittsburgh were given some assurances Thursday, if not firm ones. Johnson said keeping the company's headquarters in the city is in the contract. "I told them Pittsburgh was nonnegotiable," he said. Heinz has about 1,200 employees in the region.

3G Capital's Alex Behring was asked whether Heinz would be subject to the cost-cutting and push for efficiencies seen at other 3G Capital acquisitions. "I think we've been involved in a variety of deals in the past," he said, offering that some businesses were in better shape than others.

Johnson said Heinz came into the deal from a position of strength. With $11.6 billion in annual revenue and operations on six continents, Heinz and its brands seem to be everywhere, from the United Kingdom, where Heinz beans on toast are a favorite, to Italy where it sells baby food.

But some in the investment community thought Heinz needed to be bigger to compete in an industry that has large players such as Kraft and General Mills.

It has been seen as a prime target before.

In 2006, Heinz fought a proxy battle with activist investor Nelson Peltz. The group ended up winning two seats on the board, not enough to take control but enough to have an influence. Johnson has remarked in the past that he talks regularly with Peltz.