Has H.J. Heinz Company (HNZ) Become the Perfect Stock?

Until recently, Heinz drew relatively little attention despite its slow but steady gains throughout 2012. Most investors saw Heinz as a slow-growth business with relatively little potential, and many saw Unilever plc (ADR) (NYSE:UL) as offering better prospects for expansion with its combination of food and personal-care products giving it more diversification than Heinz. The sluggishness of the food industry generally, which has faced food-inflation price pressures for a while now, was a big part of why Kraft Foods Group Inc (NASDAQ:KRFT) split off its higher-growth international snack business from its North American grocery segment.

But last week, Berkshire Hathaway Inc. (NYSE:BRK.A) and private-equity firm 3G Capital made a surprise bid for Heinz, bidding $72.50 per share for the company. Some analysts believe that Buffett may have overpaid for Heinz. But the deal’s structure puts much of the risk on 3G, as Berkshire will get an equal common-stock position but also own preferred shares worth $8 billion that will pay a 9% annual dividend. In Buffett’s words, “Heinz will be 3G’s baby,” and with the overhang of preferred stock, the deal from 3G’s perspective will closely resemble a highly leveraged buyout transaction.

With little chance that the transaction will be rejected, Heinz may not have much chance to improve before exiting the market as a public company. But you can count on having 3G and Berkshire work to reduce debt and use the iconic brand to drive sales growth in emerging markets like 3G’s native Brazil. Whatever happens, you haven’t heard the last of Heinz.

The article Has Heinz Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, H.J. Heinz, and Unilever and owns shares of Berkshire Hathaway.

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