After Heinz Buyout, What’s Next for Buffett and Berkshire Hathaway?

Michael Teague  |

It was only a matter of time before Warren Buffett finally made the huge acquisition he had been talking about for a while now. On Thursday, it was announced that Buffett's Berkshire Hathaway (BRKA) and Jorge Paolo Lemann’s investment firm 3G Capital had teamed up to purchase the long-standing and globally ubiquitous ketchup-maker H. J. Heinz Company (HNZ), in a deal worth about $28 billion after Heinz’s $5 billion of debt is factored in.

Heinz closed Wednesday at $60.48 per share, so the proposed purchase price represents a near 20 percent premium. Heinz, whose numerous brands include but are not limited to HP Sauce, Ore-Ida, as well as licensed products from Weight Watchers (WTW) and T.G.I. Friday's, was already trading near all-time highs before Thursday’s news sent it up even further.

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According to CNN Money, the primary beneficiaries of the acquisition may be two mutual funds managed by BlackRock (BLK), which owns about 5 percent, and the Vanguard Group, which owns about 4.5 percent. Heinz CEO William Johnson also stands to make a $100 million profit on the deal as the largest inside holder.

3G, who bought Burger King Holdings in 2010 for $4 billion, restructured the fast food chain and re-listed it in 2012 as Burger King Worldwide (BKW), has a great deal of expertise in the consumer goods industry and is expected to put up the difference after Berkshire’s $12 or $13 billion contribution and $8 billion in preferred stock takeaway. The Heinz acquisition is the largest Berkshire Hathaway deal since the $26 billion acquisition of Burlington Northern Santa Fe Corp. in 2009.

The deal is the largest acquisition to date in the food industry, and is ranked third behind behind the $61.6 billion spin-off of Kraft Foods (KFT) from Altria Group (MO) in 2007 and the $60.4 billion buyout of Anheuser-Busch by InBev (BUD) in 2008.

Berkshire had about $47 billion to make the kind of big acquisition for which Buffet had been “itching”, but this deal hardly put a ding in that sum, so it is likely that Buffett will be on the look-out for another purchase, though for the time being there is no distinct indication of what that might be or when it will happen. In the meantime, Berkshire Hathaway’s stock climbed about 1.01 percent, to close the day at $149,200.

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