Heinz has a large international presence, including in emerging markets,… (Toby Talbot, Associated…)
Warren Buffett wants some ketchup with his soda and ice cream.
The famed investor is teaming up with a Brazilian private equity firm to acquire ketchup giant H.J. Heinz Co.
The $23-billion price tag makes it one of the biggest buyouts in the history of the food industry. Factoring in the assumption of debt, the deal is worth $28 billion.
Buffett's investment firm Berkshire Hathaway Inc. and 3G Capital Management each would pay more than $4 billion. Berkshire also would acquire $8 billion in preferred stock, with the rest of the purchase price being financed.
The blockbuster deal — which is subject to regulators' and Heinz shareholders' approval — is the latest for Buffett, who has been casting about for large deals to soak up the huge stockpile of cash that has been building on Berkshire's balance sheet.
The Heinz deal is typical Buffett, who has long invested in brand-name companies whose products he understands. In addition to its trademark ketchup, Heinz owns brands including Tater Tots hash browns, Classico pasta sauces and Weight Watchers Smart Ones frozen dinners.
"It really fits the Buffett mold in terms of the kind of companies he's interested in," said Paul Lountzis, founder of Lountzis Asset Management in Wyomissing, Pa. "Ketchup is not going away."
Berkshire would earn a robust 9% dividend yield on the preferred shares. "In today's very low-yield world, that's a phenomenal financial kicker," Lountzis said.
Heinz shareholders would get $72.50 a share in cash, a nearly 20% premium to the ketchup maker's Wednesday closing price of $60.48.
Heinz has a large international presence, including in emerging markets, which is helping to offset softness in the domestic market.
"Heinz has strong, sustainable growth potential based on high-quality standards, continuous innovation, excellent management and great-tasting products," Buffett said in a statement.
Several other large deals have been struck recently as well, including the proposed $24-billion buyout of Dell Inc. and Comcast Corp.'s $16.7-billion agreement to buy the remaining stake in NBCUniversal. The spate of deals is spurring talk that corporate executives are finally feeling comfortable enough about the global economic outlook to pull the trigger on sizable transactions.
Heinz stock was at an all-time high before the deal was announced, a break from Buffett's strategy of swooping in on weakness. The company's stock had more than doubled from its low in early 2009.
But after nearly four years of a rising stock market, it's getting tougher for Buffett to find sufficiently large companies trading at rock-bottom prices.
Buffett's partner in the deal, 3G Capital, made a name for itself by buying a majority stake in the Burger King hamburger chain in 2010.
Heinz would maintain its headquarters in Pittsburgh.
Heinz shares closed at $72.50 on Thursday, though they traded as high as $72.61, indicating some may expect a rival bid to emerge.
Among Berkshire's other food-related holdings are International Dairy Queen Inc. and See's Candies. Berkshire also is the largest investor in Coca-Cola Co., with an 8.9% stake.