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The first installment of our new predictive index shows that dealmakers expect overall M&A to increase, with health care outperforming the overall market READ MORE 

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ACG New York Women of Leadership - Entrepreneur Series
Barbara Bradley Baekgaard, founder of Vera Bradley (Nasdaq: VRA), is the latest in a series of entrepreneurs highlighted at ACG New York Women of Leadership events. Photo credit: Robert Blumenfeld

Watercooler

GTCR, Hormel, the Riverside Co-CEOs and Others Win M&A Mid-Market Awards
Amid a slow and challenging year for dealmaking, the winners of Mergers & Acquisitions’ 7th Annual M&A Mid-Market Awards outpaced the competition to grow, innovate and lead the middle market

Roundtable

Financial Services Companies Heat Up M&A Market
Speakers from Flexpoint Ford, Genstar Capital, Baird Capital, Madison Capital Funding and Katten Muchin Rosenman discuss the various factors playing a role in M&A activity within the financial services space

Expert's Corner

Pursuing Pharma Manufacturing
The fragmented pharmaceutical manufacturing industry provides plenty of opportunities for private equity investors, says JLL Partners founder Paul Levy

Food & Beverage
Berkshire Joins 3G Capital to Buy Heinz in $23 Billion Deal

Heinz makes condiments and Ore-Ida potato snacks

Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital agreed to buy HJ Heinz Co. in a deal for about $23 billion as the billionaires increased their bets on consumer products.

The buyers will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement today. Berkshire will spend about $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks, Buffett told kCNBC. The deal will also be financed with cash from 3G affiliates, plus the rollover of existing debt, and is valued at about $28 billion including debt, according to the statement.

Heinz benefits from “very powerful consumer goodwill in the developed markets and a very early start in China and India, two of the largest developing markets,” Tom Russo, a partner at Berkshire investor Gardner Russo & Gardner said in a phone interview. “It will not be hard to service the debt.”

Buffett, 82, has been seeking deals after the cash pile at Omaha, Nebraska-based Berkshire climbed to more than $45 billion. He has previously wagered on consumer products through equity investments in Coca-Cola Co. and he helped finance Mars Inc.’s purchase of chewing gum maker Wm. Wrigley Jr. Co. Brazil’s Lemann, 73, is worth about $19 billion based on holdings in Anheuser-Busch InBev NV and Burger King Worldwide Inc., according to the Bloomberg Billionaires Index.

Heinz shares climbed to $72.45 in early trading at 9:23 a.m. in New York. Berkshire B shares advanced 13 cents to $98.10.

The condiment maker, led by Chief Executive Officer Bill Johnson since 1998, had gained 17 percent in the past 12 months as it boosted sales in developing economies. Heinz in November said fiscal second-quarter sales in emerging markets rose 13 percent, excluding the effects of foreign currency fluctuations and acquisitions or divestitures.

Heinz elected billionaire Nelson Peltz to the board in 2006 following a six-month proxy fight. Peltz had been pushing the company to trim costs and sell assets to boost the ketchup maker’s share price.

3G will oversee the operations of the business, Buffett told CNBC, praising the investment company’s record with Burger King, which it acquired in 2010 and then took public last year. He said he expects Johnson to remain in charge and that 3G will have the final say.

“Any partnership where I don’t have to do the work is my kind of partnership,” Buffett said. Buffett is worth more than $50 billion, according to the Bloomberg Billionaires Index.

Heinz will retain its corporate headquarters in Pittsburgh, according to the statement. The company traces its roots back to 1869, when Henry JohnHeinz and neighbor L. Clarence Noble began selling grated horseradish, according to Heinz’s website. The company introduced its famous Tomato Ketchup in 1876.

The deal is the largest ever in the food industry, the companies said. The buyers are paying about 14.6 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the median of 7.6 times Ebitda in a survey of more than 100 comparable deals worldwide.

“Buffett’s affection for strong brand names” make the company a good fit for his portfolio, said Christopher Growe, an analyst at Stifel Nicolaus & Co. “Heinz’s strong margins support robust free-cash flow generation.”

There have been more than $280 billion announced deals this year, according to data compiled by Bloomberg. That’s 26 percent more than in the same period a year earlier.

Centerview Partners LLC and Bank of America Corp. acted as financial advisers to Heinz, while Davis Polk & Wardwell LLP provided legal counsel to the ketchup maker. The Heinz board committee that approved the deal got financial advice from Moelis & Co. and legal counsel from Wachtell, Lipton, Rosen & Katz. The Moelis team included bankers Ken Moelis, Rick Leaman, John Collins and Ben Axelrod.

Lazard Ltd. served as lead financial adviser to the investment group. JPMorgan Chase & Co. and Wells Fargo & Co. also gave financial advice, and the two banks have committed debt financing, according to the statement. Kirkland & Ellis LLP provided legal counsel to 3G Capital, while Munger, Tolles & Olson LLP is acted as legal adviser to Berkshire Hathaway.

Mergers & Acquisitions' Anthony Noto contributed to this story.

 

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