Case Detail

Case Summary

H. J. Heinz M&A

Case Number: 5-413-757, Year Published: 2014

HBS Number: KEL848

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Authors: David Stowell; Nicholas Kawar

Key Concepts

Cash Flow Analysis, Corporate Governance, Financial Analysis, Financial Statements, Financial Strategy, Mergers and Acquisitions, Private Equity, Shareholder Value Added, Valuation

Abstract

During December 2012, Jorge Paulo Lemann, a co-founder and partner at 3G, proposed to Warren Buffett that 3G and Berkshire Hathaway acquire H. J. Heinz Company. Lemann and Buffett, who had known each other for years, jointly decided that the Heinz turnaround had been successful and that there was significant potential for continued global growth. 3G informed Heinz CEO William Johnson that it and Berkshire Hathaway were interested in jointly acquiring his company. Johnson then presented the investors’ offer of $70.00 per share of outstanding common stock to the Heinz board.

After much discussion, the Heinz board and its advisors informed 3G that without better financial terms they 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).

Following a forty-day “go-shop” period, Heinz, 3G, and Berkshire Hathaway agreed to sign the deal. But was this, in fact, a fair deal? And what might be the future consequences for shareholders, management, employees, and citizens of Pittsburgh, the location of the company’s headquarters? Last, what was the role of activist investors in bringing Heinz to this deal stage?

Learning Objectives

After reading and analyzing the case, students will be able to:

  • Understand the influence of investment bankers on M&A transactions
  • Consider synergies that drive M&A
  • Consider the role of activist investors in corporate strategic decision-making
  • Understand the impact of M&A on key corporate stakeholders
  • Apply core valuation techniques to support M&A valuation

Number of Pages: 25

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: United States

Industry: Food

Organization Name: H. J. Heinz Company

Organization Size: Large

Year of Case: 2013