Warren Buffett’s Tasty Food Deal: H.J. Heinz Company (HNZ)

Page 1 of 2

Warren BuffettWarren Buffett, the most successful and respected investor in the world, has recently pulled the trigger on H. J. Heinz Company (NYSE:HNZ), one of the largest global makers of ketchup and baby food. His firm Berkshire Hathaway Inc. (NYSE:BRK.B) partnered with 3G, a Brazilian private-equity firm, to purchase Heinz at around $72.50 per share, with a total transaction value of $28 billion. The purchase price represented a 20% premium to its Wednesday’s closing price of $60.48 per share. Some might argue that Warren Buffett has overpaid this time, but Buffett said that it was his kind of deal and kind of partner.

Heinz is a Wide Moat Business

Heinz is considered the global leader in the ketchup and baby food businesses, with a global brand portfolio and world-class iconic brands. Over the last 10 years, Heinz has reduced the number of business categories from 6 in 2002 to only 3 in 2012. The three main business categories are Ketchup & Sauces, Meals & Snacks, and Infant/Nutrition. Around 47% of the total sales were generated from the Ketchup & Sauces business, including one of its key brands, Heinz Ketchup. Heinz Ketchup is considered a market leader in several markets, with a 60% market share in the US, 70% in Canada, and around 80% in the UK. For the last 10 years, Heinz has been increasing its global mix successfully. The sales from emerging markets have grown significantly, from 7% in 2002 to nearly 25% in 2012. In the first quarter of fiscal year 2013, Heinz derived two-thirds of its revenue from the international market.

Tasty Deal for Buffett

The Heinz acquisition is not a common buyout deal that Warren Buffett often does. Looking closely into the deal structure, I find that the majority of his investment goes into preferred stocks. Berkshire Hathaway will invest more than $4.5 billion for a 50% stake in the company, and 3G will invest an equal amount for another 50% stake. In addition, Berkshire Hathaway will invest an additional $8 billion in preferred stocks in the company. Thus, out of the $12.5 billion that Buffett invests in the deal, around 64% goes into preferred stock investment. Interestingly, the preferred stocks carry a juicy dividend yield at 9%. Thus, the $8 billion preferred stock will pay Buffett a yearly stable preferred dividend of $720 million.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!