2013 Deals of the Year: Warren Buffett’s Heinz Buyout Cuts the Mustard

Acquisitions involving Warren Buffett just seem to go off without a hitch. Witness the octogenarian Oracle of Omaha’s recent purchase of H.J. Heinz Co., whose shareholders relished his bid to take the ketchup giant private. The $27.4 billion buyout, which closed on June 7, paid $72.50 for Pittsburgh-based Heinz’s outstanding shares, a 20 percent premium on their closing price at the February 14 deal announcement.

Buffett’s Berkshire Hathaway split the bill 50-50 with 3G Capital, an investment firm led by fellow billionaire Jorge Paulo Lemann, Brazil’s richest man. 3G, whose main office is in New York, had already shown a taste for U.S. edibles with global appeal by picking up Burger King Holdings for $3.3 billion in 2010.

Buffett likes getting good deals for well-run companies that generate healthy returns and show growth potential. Heinz may be an American institution, but in the 2013 fiscal year almost a quarter of its sales came from emerging markets. The simplicity of its core product mirrors one of Buffett’s long-held investments, Coca-Cola Co., a position he’s steadily built since 1988.

Antonio Weiss, who acted as lead banker to Omaha, Nebraska–based Berkshire Hathaway and 3G, advised on the Burger King buyout. Weiss, the New York–based global head of investment banking for Lazard, fronted a team that included managing director Alexander Hecker. JPMorgan Chase & Co. and Wells Fargo & Co. also advised the consortium; representing Heinz were Bank of America Merrill Lynch and independent investment banks Centerview Partners and Moelis & Co. Total advisory fees were as high as $107 million.

True to form, Buffett reportedly has no plans to ever sell a share in Heinz; he and Lemann don’t appear to have hatched this leveraged buyout with an exit in mind. “It’s a strategic deal as opposed to a financial deal,” says Weiss, 47, who was Lazard’s Paris-based global head of M&A until 2009. “It’s a long-term commitment to the company, to the industry.”

But Heinz began restructuring almost immediately, a move that points to Lemann and 3G’s hands-on approach. Chief executive William Johnson was ousted in favor of cost-cutter Bernardo Hees, previously CEO of Burger King. In November management announced plans to trim 1,350 jobs by closing three North American plants. Heinz isn’t a traditional private equity deal, Weiss notes: “There is no limited partner relationship in an institutional sense, with a return requirement within some time period.” As a result, he explains, the investor group can focus on long-term growth.