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Warren Buffett, 3G Capital buying H.J. Heinz

NEW YORK — Billionaire Warren Buffett is dipping into the ketchup business as part of a $23.3 billion deal to buy H.J. Heinz Co., uniting a legend of American investing with a mainstay of grocery store shelves.

It's the largest deal ever in the food industry and is intended to help Heinz accelerate its transformation into a global business. The company, based in Pittsburgh, also makes Classico pasta sauces, Ore-Ida potatoes and Smart Ones frozen meals.

Buffett's Berkshire Hathaway and its partner on the deal — 3G Capital, the investment firm that bought Burger King in 2010 — say Heinz will keep its headquarters in Pittsburgh.

Heinz CEO William Johnson said at a news conference that taking the company private would give Heinz the flexibility to make decisions more quickly, without the burden of having to report quarterly earnings.

Heinz was founded by Henry John Heinz and his neighbor, L. Clarence Noble, in 1869. Their first product was grated horseradish, bottled in clear glass to showcase its purity. The first ketchup was introduced in 1876; the company says it was the country's first commercial-grade ketchup.

Last year, Heinz had sales of $11.6 billion, with ketchup and sauces accounting for just under half of that. Given the saturated North American market, it has increasingly been looking overseas for growth.

In 2010, for example, the company bought Foodstar, which makes Master brand soy sauce and fermented bean curd in China. Heinz expects emerging markets to account for a quarter of the company's sales this year.

Buffett said Thursday on cable television network CNBC that 3G's billionaire co-founder Jorge Lemann approached him about the Heinz deal on a plane they were on in early December.

Johnson stressed that Heinz would remain in Pittsburgh, noting that the condition was part of the deal. He said the only changes the city should see as a result would be that Heinz would no longer be listed in the stock pages of newspapers.

As for management changes, including his own tenure, Johnson said there hadn't yet been any discussions.

Although 3G Capital has a record of aggressively cutting costs at businesses it acquires, managing partner Alex Behring noted at the press conference that Heinz is different because the business is healthy and has been growing its core sales.

Heinz's brands have power with shoppers that takes years to create, and it has been able to raise prices even in the highly competitive grocery business, said Brian Sozzi, chief equities analyst for NBG Productions.

"There isn't going to be another Heinz brand," he said. "It has a durable competitive advantage."

"It's our kind of company," Buffett said in the CNBC interview, noting its signature ketchup has been around for more than a century. "I've sampled it many times."

The deal is expected to close in the third quarter.

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By the numbers

$23.3 billion: Amount Warren Buffett's Berkshire Hathaway and partner 3G Capital are paying to acquire H.J. Heinz

$72.50: Closing price for Heinz shares Thursday, up $12.02, or 19.9 percent, over Wednesday's close

$11.6 billion: Heinz's total revenue in 2012

Warren Buffett, 3G Capital buying H.J. Heinz 02/14/13 [Last modified: Thursday, February 14, 2013 10:03pm]
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