Buffett to buy Heinz for US$23.3 billion

For his money, the Oracle of Omaha gets one of the oldest and most familiar American brands, one that's in refrigerators and kitchen cupboards all over the U.S.

The deal is intended to help Heinz accelerate its expansion from a dominant American name into a presence on grocery shelves worldwide. The Pittsburgh-based company also makes baked beans, pickles, vinegar, Classico pasta sauces and Ore-Ida potatoes, as well as a growing stable of sauces suited to regional tastes around the world.

The deal, expected to close in the third quarter, sent shares of Heinz soaring. The company's stock price was up nearly 20 percent, closing at US$72.50 Thursday on the New York Stock Exchange.

Berkshire picked up steam, too. Its Class A shares gained US$1,490, or about 1 percent, to close at US$149,240.

Berkshire remains the most expensive U.S. stock but it's still below its all-time high of US$151,650, reached in December 2007. That came before the financial turmoil of 2008 and just after an exceptionally profitable quarter that was helped by a US$2 billion investment gain.

The plans to take Heinz private apparently began to take shape on a plane in early December. In an interview with CNBC, Buffett said he was approached at that time by Jorge Lemann, a fellow billionaire and a co-founder of 3G. The two had known each other since serving on the board of Gillette about 12 years ago.

Berkshire is putting up US$12.12 billion in return for half of the equity in Heinz, as well as US$8 billion of preferred shares that pay 9 percent, according to a filing with the Securities and Exchange Commission. 3G Capital will run Heinz, and Berkshire will be the financing partner.

The business reaches back to 1869, when Henry John Heinz and neighbor L. Clarence Noble began selling grated horseradish, bottled in a clear glass to showcase its purity. It wasn't until 1876 that the company introduced its flagship product, America's first commercial ketchup.

Heinz didn't become a public company until years later, in 1946.

The company earned US$923.2 million on revenue of US$11.65 billion in its last fiscal year.

The Heinz deal and the American Airlines-US Airways merger add to an already strong start for merger activity this year. Global merger activity has been tepid since 2007, when US$4.6 trillion in deals were announced, according to Dealogic. Last year's total was US$2.7 trillion.

The deal is a departure for Berkshire Hathaway. Generally, Buffett prefers to buy entire companies and then allow the businesses to continue operating much the way they did before. Berkshire has also helped finance deals before — most recently during the financial crisis of 2008, when he made lucrative deals for Berkshire when few other companies had cash.

Heinz shareholders will receive US$72.50 in cash for each share of common stock they own. Based on Heinz's number of shares outstanding, the deal is worth US$23.3 billion excluding debt. Including debt, it's worth about US$28 billion.

The price for the deal represents a 20 percent premium over Heinz's closing price of US$60.48 on Wednesday. Heinz said the deal was unanimously approved by its board.

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