H. J. Heinz M&A
REVISED APRIL 25, 2019
DAVID P. STOWELL AND NICHOLAS KAWAR ’14 KEL848
H. J. Heinz M&A
In December 2012 Jorge Paulo Lemann, a co-founder and partner at investment firm 3G
Capital, proposed to Wa
en Buffett that 3G and Berkshire Hathaway acquire H. J. Heinz Company.
After negotiating the purchase price, Heinz agreed to continue discussing the acquisition. Although
the food industry was mature, 3G and Berkshire Hathaway saw opportunities for Heinz both in
expanding into emerging markets and realizing operational efficiencies in production. Investment
ankers representing both sides agreed that the acquisition was valued fairly. But was this, in fact,
a fair deal? What could be the future consequences for shareholders, management, employees, and
citizens of Pittsburgh, where Heinz had long been headquartered? Also, what was the role of activist
investors in
inging Heinz to this deal stage?
Proxy Fight
Six years prior to the acquisition talks, in 2006, the market overall was booming: companies
signaled record profits; merger and acquisition (M&A) activity was strong; and markets were
showing signs of recovery from the dot-com crash of the early 2000s. The story was the opposite
for Heinz: quarterly losses piled up and shareholders demanded immediate changes. Pressure for
improvement was fierce, especially from Nelson Peltz, the outspoken activist investor who had
ecently acquired a 5.4 percent stake in Heinz through his investment fund, Trian Fund
Management L.P. Peltz demanded that the company either be sold, or shed non-core assets,
aggressively repurchase stock, and trim the fat that had built up under the watch of William
Johnson, Heinz’s CEO. Peltz demanded that he receive five board seats to add real management
oversight to the weakening company. In June 2006 Heinz announced a massive restructuring that
eliminated more than 2,700 employees, closed fifteen factories, and initiated a $1 billion share buy-
ack. Heinz’s effort to retain control of the company by embarking on this turnaround plan was
only partially successful. Ultimately, Peltz was able to secure two board seats on the twelve-person
oard. The foundation had been paved for a potential sale of the company down the road.
Market Conditions
Following the 2008–2009 financial crisis that devastated the worldwide economy, the U.S.
economy revived slowly. The GDP growth rate oscillated around 2 percent, and many economists
predicted a slight GDP rebound to 3 percent. As consumer confidence grew, there was moderate
growth in consumer spending and an increase in inventory. Though dissenting opinions existed,
©2014, 2019 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor David P. Stowell
and Nicholas Kawar ’14. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements,
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For the exclusive use of D. Ghosh, 2020.
This document is authorized for use only by Devleena Ghosh in Behavioral Corporate Finance (Summer 2020) taught by DUCCIO MARTELLI, Universit?? degli Studi di Perugia from Jun 2020
to Aug 2020.
mailto: XXXXXXXXXX
H. J. HEINZ M&A KEL848
many economists and economic indicators pointed to the fact that the United States was on the road
to recovery.
Within the food and beverage industry, many companies began to see a rebound in consumer
purchasing. Some executives saw growth opportunities by expanding their customer base to new
geographic markets (including China, Russia, India, and the Latin America region), while others
saw growth opportunities by leveraging economies of scale across fixed production lines. M&A
activity increased from lows in 2008, as investors continued to pressure management to divest non-
core product lines in search of more efficient businesses and to expand growth and margins through
acquisitions.
The Acquisition
Jorge Paulo Lemann and Wa
en Buffett, who had known each other for years, jointly decided
that the Heinz turnaround that was started by Peltz had been successful and there was significant
potential for continued global growth. 3G informed CEO Johnson that it and Berkshire Hathaway
were interested in jointly acquiring Heinz. Johnson then presented the investors’ offer of $70.00
per share of outstanding common stock to the Heinz board. At a meeting on January 15, 2013, the
oard appointed a transaction committee and voted to retain Centerview and Bank of America
Me
ill Lynch as advisors. Heinz’s board and advisors discussed the trends that were negatively
impacting Heinz, including low international GDP growth. They also discussed alternatives to a
sale, including remaining a standalone company or pursuing acquisition by another company in the
food and beverage industry. After updating its strategic plan and financial projections, Heinz
informed 3G that without better financial terms it would not continue to discuss the possibility of
an acquisition. Two days later, 3G and Berkshire Hathaway returned with a revised proposal of
$72.50 per share, for a total transaction value of $28 billion (including Heinz’s outstanding debt).
A week after the new proposal, Heinz agreed to continue discussing the acquisition.
Following a forty-day “go-shop” period1 (permitting Heinz some time to look for other
investors) Heinz, 3G, and Berkshire Hathaway agreed to sign the deal on Fe
uary 13, 2013. On
that day, Bank of America Me
ill Lynch and Centerview presented to the Heinz board their
opinions that the acquirers’ offer was fair from a financial perspective. The transaction committee
of the board also provided its approval of the acquisition after receiving a fairness opinion from
Moelis & Company, allowing execution of a merger agreement and a press release announcing the
transaction.
1 A go-shop is a provision in a merger that allows a target to solicit interest from potential buyers of the company for a limited period of
time (usually less than two months) after signing a definitive agreement with an initial buyer. The right to solicit includes the ability to
exchange confidential information about the target with a potential buyer based on the completion of a confidentiality agreement. If a
etter offer emerges from the go-shop process, the target company board is able to exercise a “fiduciary out” and terminate the merger
agreement with the initial buyer. This may be subject to payment of a
eak-up fee.
KELLOGG SCHOOL OF MANAGEMENT 2
For the exclusive use of D. Ghosh, 2020.
This document is authorized for use only by Devleena Ghosh in Behavioral Corporate Finance (Summer 2020) taught by DUCCIO MARTELLI, Universit?? degli Studi di Perugia from Jun 2020
to Aug 2020.
KEL848 H. J. HEINZ M&A
Key Dates2
12/12/12 Jorge Paulo Lemann, partner at 3G Capital, proposes to Wa
en Buffet that
Berkshire Hathaway and 3G acquire Heinz. Buffet responds positively.
12/18/12 William Johnson, CEO of Heinz, meets with Lemann and Alexandre Behring, a
managing partner at 3G. They discuss the food and beverage industry without
proposing an acquisition.
1/10/13 Behring tells Johnson that 3G and Berkshire Hathaway are interested in jointly
acquiring Heinz. Johnson responds that he will inform the Heinz board if Behring
will provide a written proposal, but that Heinz is not for sale.
1/14/13 3G and Berkshire Hathaway provide a non-binding proposal in which they offer
to acquire Heinz at $70.00 per share for outstanding common stock.
1/15/13 Heinz board meets to discuss the proposed acquisition, then appoints a transaction
committee and votes to retain advisors (Centerview and Bank of America Me
ill
Lynch).
1/20/13 Heinz updates its financial projections and strategic plan.
1/22/13 Heinz informs 3G that it will not advance discussions without improved financial
terms.
1/24/13 3G and Berkshire Hathaway provide a revised non-binding proposal for $72.50 in
cash per outstanding common share.
1/30/13 Heinz board decides the proposal is an attractive option and allows continued
discussions.
2/1/13 3G and Berkshire Hathaway send a proposed term sheet to Centerview.
2/7/13 New draft term sheet is provided that includes a forty-day “go-shop” period.
2/8/13 All parties agree to sign by Fe
uary 13.
2/13/13 Moelis & Company presents a fairness opinion to the transaction committee,
which then recommends to the Heinz board that the company be sold. The other
advisors present fairness opinions and the board approves the transaction.
2/14/13 Heinz, 3G, and Berkshire Hathaway issue a press release announcing the
transaction.
3/30/13 Heinz announces that shareholders approved the acquisition.
2 Heinz Proxy Statement, http:
www.sec.gov/Archives/edga
data/46640/ XXXXXXXXXX/d491866dprem14a.htm.
KELLOGG SCHOOL OF MANAGEMENT 3
For the exclusive use of D. Ghosh, 2020.
This document is authorized for use only by Devleena Ghosh in Behavioral Corporate Finance (Summer 2020) taught by DUCCIO MARTELLI, Universit?? degli Studi di Perugia from Jun 2020
to Aug 2020.
http:
www.sec.gov/Archives/edga
data/46640/ XXXXXXXXXX/d491866dprem14a.htm
H. J. HEINZ M&A KEL848
The History of Heinz
The H. J. Heinz Company was established in 1869 when founder Henry J. Heinz began selling
ottled horseradish in Sharpsburg, Pennsylvania. The company was incorporated in 1900 and has
een headquartered in Pittsburgh, Pennsylvania, since then. In 1896 Heinz was selling more than
sixty products, including ketchup, allowing the company to adopt the slogan “57 Varieties.” As one
of the first food-processing companies in the United States, Heinz allowed customers who were
used to preparing their own food to buy pre-prepared and packaged foods such as beans, soups,
pickles, and condiments. Heinz was first listed on the New York Stock Exchange in 1946. It began
acquiring other companies in 1978, starting with Weight Watchers International. Heinz had
historically placed great emphasis on its headquarters location in Pittsburgh and has demonstrated
loyalty to its employees there.