Berkshire acquires Heinz for 72.5 p/s

[Phaceliacapital]

Total value deal around 28bn, stock up 18%

[Cardboard]

Wow! Could not see that one coming. There was a lot of rumours about Chubb, but Heinz?

 

A near monopoly in ketchup IMO! Rarely buy anything else if ever. It is not cheap however at 20 times earnings and slow growth, but very stable. Compared to treasuries and his current cost of capital that still adds value.

 

Cardboard

[berkshiremystery]

Berkshire Joins 3G Capital to Buy Heinz in $23 Billion Deal

2013-02-14 Bloomberg

http://www.bloomberg.com/news/2013-02-14/berkshire-joins-3g-capital-to-buy-heinz-in-28-billion-food-deal.html?cmpid=yhoo

 

 

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Berkshire and 3G Capital to Buy Heinz for $23 Billion

2013-02-14 NY Times

http://dealbook.nytimes.com/2013/02/14/berkshire-and-3g-capital-to-buy-heinz-for-23-billion/?partner=yahoofinance

 

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Firms including Warren Buffett's to buy Heinz

2013-02-14 AP

http://finance.yahoo.com/news/firms-including-warren-buffetts-buy-130536467.html

 

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[biaggio]

Wow! Could not see that one coming. There was a lot of rumours about Chubb, but Heinz?

 

A near monopoly in ketchup IMO! Rarely buy anything else if ever. It is not cheap however at 20 times earnings and slow growth, but very stable. Compared to treasuries and his current cost of capital that still adds value.

 

Cardboard

 

yes wow.

 

Seems like a good deal for BRK despite 20x earnings

 

As BRK will get 9% return on $8b of prefered stock. + there is leverage in a very low interest environment- there (BRK + 3G) putting $8.8 b in cash and rest is financed-so overall should get decent return

 

 

[Guest longinvestor]

I'm very curious about 3G, because some older articles still showed them with relative view AUM some years ago ($10m in 2004, and $50m AUM in 2009).

 

 

3G Capital Management LLC

 

http://www.3gcapital.com/

 

http://www.3gcapital.com/CFA%20Magazine%20Nov-Dec%202007%203G%20Capital1.pdf

 

After graduation, Begun founded 3G Capital Management with his partner Cory Bailey, who shares Begun’s passion for value investing in the style of Warren Buffett. Quoting Benjamin Graham, Begun says, “‘You are neither right nor wrong because the crowd disagrees with you. You’re right because your data and reasoning are right.’ That was also the philosophy that my dad taught me as a kid, and that’s the cornerstone of the value investment phi- losophy we’re pursuing now.”

“We started out totally with zero,” says Begun. “Cory and I, we don’t come from wealthy backgrounds. We don’t have wealthy family or friends, but we knew what we believed in and what we wanted to do.”

The two rented a $400 basement office “in a B class building,” says Begun, “so you can imagine what it was like—no natural light, just a complete bunker.”

“We would have clients come to us and say, ‘You’re just two 25-years olds in a basement – how long are you going to last? And we’d say, ‘Well, we are going to last!’ And two years later, they were sending us the checks.”

Since 3G’s inception in July 2004, assets have grown to around US$10 million, from a start-up of a couple hundred thousand dollars. Returns have averaged 16 percent per year, despite an average cash position of 25 percent.

 

 

-----

 

They Shoot, They Score

3G Capital Management's investing priorities are reflected in its name, which stands for good business, good management and good price.

2009-10-26 Barron's

 

http://online.barrons.com/article/SB125633652621904689.html#articleTabs_article%3D1

 

That philosophy is embodied in the firm's name -- 3G stands for good business, good management and good price.

 

With assets of $50 million and offices in St. Louis and Toronto, 3G is a global, value-oriented hedge fund that doesn't hedge and shuns commodities, options and derivatives, seeking instead to make money the old fashioned way -- by investing long in what Begun calls "bread-and butter" companies with solid business models and then waiting for long term capital appreciation. Begun and his partner, both of whom are 31, keep most of their net worth in the fund.

 

Wonder if the brothers will become the 3rd/4th on the BRK investment team after Coombs/Weschler? They are 31!!

[fuluvu]

I do not think that this is the 3G Capital that joined Buffett to buy HEINZ. The principle who joined Buffett is

Jorge Paulo Lemann, who is long time friend of Buffett.

 

 

I'm very curious about 3G, because some older articles still showed them with relative view AUM some years ago ($10m in 2004, and $50m AUM in 2009).

 

 

3G Capital Management LLC

 

http://www.3gcapital.com/

 

http://www.3gcapital.com/CFA%20Magazine%20Nov-Dec%202007%203G%20Capital1.pdf

 

After graduation, Begun founded 3G Capital Management with his partner Cory Bailey, who shares Begun’s passion for value investing in the style of Warren Buffett. Quoting Benjamin Graham, Begun says, “‘You are neither right nor wrong because the crowd disagrees with you. You’re right because your data and reasoning are right.’ That was also the philosophy that my dad taught me as a kid, and that’s the cornerstone of the value investment phi- losophy we’re pursuing now.”

“We started out totally with zero,” says Begun. “Cory and I, we don’t come from wealthy backgrounds. We don’t have wealthy family or friends, but we knew what we believed in and what we wanted to do.”

The two rented a $400 basement office “in a B class building,” says Begun, “so you can imagine what it was like—no natural light, just a complete bunker.”

“We would have clients come to us and say, ‘You’re just two 25-years olds in a basement – how long are you going to last? And we’d say, ‘Well, we are going to last!’ And two years later, they were sending us the checks.”

Since 3G’s inception in July 2004, assets have grown to around US$10 million, from a start-up of a couple hundred thousand dollars. Returns have averaged 16 percent per year, despite an average cash position of 25 percent.

 

 

-----

 

They Shoot, They Score

3G Capital Management's investing priorities are reflected in its name, which stands for good business, good management and good price.

2009-10-26 Barron's

 

http://online.barrons.com/article/SB125633652621904689.html#articleTabs_article%3D1

 

That philosophy is embodied in the firm's name -- 3G stands for good business, good management and good price.

 

With assets of $50 million and offices in St. Louis and Toronto, 3G is a global, value-oriented hedge fund that doesn't hedge and shuns commodities, options and derivatives, seeking instead to make money the old fashioned way -- by investing long in what Begun calls "bread-and butter" companies with solid business models and then waiting for long term capital appreciation. Begun and his partner, both of whom are 31, keep most of their net worth in the fund.

 

Wonder if the brothers will become the 3rd/4th on the BRK investment team after Coombs/Weschler? They are 31!!

[berkshiremystery]

I do not think that this is the 3G Capital that joined Buffett to buy HEINZ. The principle who joined Buffett is

Jorge Paulo Lemann, who is long time friend of Buffett.

 

 

 

Thanks for pointing this out,...

 

http://en.wikipedia.org/wiki/Jorge_Paulo_Lemann

 

Lemann is among the backers of 3G Capital. In September 2010, 3G launched a US$ 4bn bid, at a 45% premium over market, for all the stock of Burger King. "3G was advised in the BK offer by Lazard, JPMorgan Chase, Barclays Capital and the law firm Kirkland & Ellis.... [The firm] already has some experience in burgers and fries, having previously invested in Wendy’s."[6]

 

 

[Kraven]

  3G founder Pavel Begun was born in Belarus and came in 1998 as some 20 year old to the US. To me it seems like some Buffett groupie fans make some big deal almost like Michael J. Fox in the movie The Secret of My Success. ;D

 

A very fine movie. 

[txlaw]

So did anyone follow Burger King before the buyout by 3G and after the SPAC acquisition?

 

These guys must be great at getting operating metrics up for WEB to do this deal with a PE firm.

[jay21]

So did anyone follow Burger King before the buyout by 3G and after the SPAC acquisition?

 

These guys must be great at getting operating metrics up for WEB to do this deal with a PE firm.

 

I did a little bit of work on BK.  It seemed like they were trying to franchise more and own less.  Also, they highlighted the Brazilian JV as providing a good amount of value.  I am not sure how the store upgrades and menu changes are working.

 

Ackman's presentation on BK: http://www.marketfolly.com/2012/04/bill-ackmans-presentation-on-burger.html

[hyten1]

yesterdays conference bill ackman spoke about bkw Harbor Investment Conference

[onyx1]

Back of the envelope analysis, seems like BRK gets the best of this deal.  The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year.    With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away.  Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.

[berkshiremystery]

Carol Loomis just wrote an article for Fortune...

 

---

 

Buffett and Brazilian investor to buy Heinz

2013-02-14 Fortune

 

http://finance.fortune.cnn.com/2013/02/14/berkshire-heinz/?hpt=hp_t2

 

 

For Buffett and Lemann, the Heinz (HNZ) deal came out of a close friendship that formed between them when both were directors of Gillette Co. in the 1990s and early 2000s. Buffett was on the board because Berkshire then owned close to 10% of Gillette. Lemann's primary business affiliation at the time was with the Brazilian brewery AmBev.

 

 

 

[mvalue]

This is a different 3G, unrelated.

 

Another article on Pavel Begun from the Globe & Mail. He seems to reside in the Toronto area.

 

http://www.3gcapital.com/The%20Globe%20and%20Mail%20Nov%202008%203G%20Capital.pdf

 

 

------

 

 

http://www.3gcapital.com/Emerging%20Manager%20Monthly%20082009%203G%20Capital.pdf

[berkshiremystery]

I already notice some minutes ago ::)

 

... seems there are some similar 3G Capital firms,... here's the one run by Jorge Paulo Lemann....

 

http://www.insidermonkey.com/hedge-fund/3g+capital/278/?fp=2012-09-30

 

http://holdings.nasdaq.com/asp/OwnerPortfolio.asp?FormType=OwnerPortfolio&CIK=0001421669&HolderName=3G+CAPITAL+PARTNERS+LTD%2E

[zarley]

Looks like 3G Capital -- http://www.3g-capital.com/ is not the small value oriented hedge fund 3G Capital -- http://www.3gcapital.com/.

 

Linking up with a Swiss billionaire makes more sense than a couple young value managers. 

[stahleyp]

haha. I was shocked seeing berkshire teaming up with some 31 year old guys with AUM of $10 million. :P

[zarley]

Back of the envelope analysis, seems like BRK gets the best of this deal.  The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year.    With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away.  Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.

 

onyx1, where did you find the info on the preferred.  The few links I've read don't mention it or have any detail.

 

 

[berkshiremystery]

Looks like 3G Capital -- http://www.3g-capital.com/ is not the small value oriented hedge fund 3G Capital -- http://www.3gcapital.com/.

 

Linking up with a Swiss billionaire makes more sense than a couple young value managers.

 

Haha,... and that was now what I just realized while googling deeper into 3G,... there are actually two completely different 3G firms in the world. Seems I fooled myself, and it's not April yet :-[,... I might apologize for posting about the wrong 3G. I now deleted the unrelated messages.

 

3G Capital (by Jorge Paulo Lemann)

http://www.3g-capital.com

 

3G Capital (unrelated company)

http://www.3gcapital.com

 

 

haha. I was shocked seeing berkshire teaming up with some 31 year old guys with AUM of $10 million. :P

 

Sure,... would have been fun,... but this only comes if someone like me takes the first 3G too serious.

[txlaw]

WEB on CNBC:

 

http://video.cnbc.com/gallery/?play=1&video=3000148043

 

Btw, WEB mentions that they had about $27 billion in excess cash at EOY, and BRK is still looking for an elephant after this Heinz deal.

[onyx1]

Back of the envelope analysis, seems like BRK gets the best of this deal.  The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year.    With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away.  Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.

 

onyx1, where did you find the info on the preferred.  The few links I've read don't mention it or have any detail.

 

Pieced together from these links:

 

"Berkshire and 3G will each contribute about $4 billion in cash to pay for the deal, with Berkshire also paying $8 billion for preferred shares. The rest of the cost will be covered by debt financing raised by JPMorgan Chase and Wells Fargo."

http://dealbook.nytimes.com/2013/02/14/berkshire-and-3g-capital-to-buy-heinz-for-23-billion/?partner=yahoofinance

 

 

"Berkshire will spend about $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks, Buffett told CNBC. The deal will also be financed with cash from 3G affiliates, plus the rollover of existing debt, and is valued at about $28 billion including debt, according to the statement."

http://www.bloomberg.com/news/2013-02-14/berkshire-joins-3g-capital-to-buy-heinz-in-28-billion-food-deal.html?cmpid=yhoo

[stahleyp]

happens to the best of us mystery. :)

[berkshiremystery]

happens to the best of us mystery. :)

 

I know,... their name 3G could also be mistaken for an old iPhone or some cellular network standard. 

 

But have you noticed,... this Jorge Paulo Lemann also started to purchase a tiny stake in SD just recently.

 

http://www.insidermonkey.com/hedge-fund/3g+capital/278/?fp=2012-09-30

[LC]

Back of the envelope analysis, seems like BRK gets the best of this deal.  The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year.    With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away.  Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.

 

onyx1, where did you find the info on the preferred.  The few links I've read don't mention it or have any detail.

 

Pieced together from these links:

 

"Berkshire and 3G will each contribute about $4 billion in cash to pay for the deal, with Berkshire also paying $8 billion for preferred shares. The rest of the cost will be covered by debt financing raised by JPMorgan Chase and Wells Fargo."

http://dealbook.nytimes.com/2013/02/14/berkshire-and-3g-capital-to-buy-heinz-for-23-billion/?partner=yahoofinance

 

 

"Berkshire will spend about $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks, Buffett told CNBC. The deal will also be financed with cash from 3G affiliates, plus the rollover of existing debt, and is valued at about $28 billion including debt, according to the statement."

http://www.bloomberg.com/news/2013-02-14/berkshire-joins-3g-capital-to-buy-heinz-in-28-billion-food-deal.html?cmpid=yhoo

 

Buffett really likes these preferred deals! Any reason why? My guess is they provide a nice midway point between bonds and common equity for Buffett's insurance reserves.

[zarley]

Back of the envelope analysis, seems like BRK gets the best of this deal.  The 9% coupon on 8.8bln in preferred is 800mm, while steady-state FCF before debt payments averaging $1.2bln/year.    With around 10bln in debt, after tax interest will be somewhere around 200mm, so very little cash will drop down to equity until the preferred is called away.  Looks like the preferred is the value driver here for Buffett, and I'd wager that there is some significant call protection on the preferred (say 5 years?), or a stip the preferred can't be refinanced early with debt.

 

onyx1, where did you find the info on the preferred.  The few links I've read don't mention it or have any detail.

 

Pieced together from these links:

 

"Berkshire and 3G will each contribute about $4 billion in cash to pay for the deal, with Berkshire also paying $8 billion for preferred shares. The rest of the cost will be covered by debt financing raised by JPMorgan Chase and Wells Fargo."

http://dealbook.nytimes.com/2013/02/14/berkshire-and-3g-capital-to-buy-heinz-for-23-billion/?partner=yahoofinance

 

 

"Berkshire will spend about $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks, Buffett told CNBC. The deal will also be financed with cash from 3G affiliates, plus the rollover of existing debt, and is valued at about $28 billion including debt, according to the statement."

http://www.bloomberg.com/news/2013-02-14/berkshire-joins-3g-capital-to-buy-heinz-in-28-billion-food-deal.html?cmpid=yhoo

 

Thanks onyx1, here's the part I missed earlier (from the bloomberg link):

 

"Berkshire and 3G will each have more than $4 billion in equity in Heinz, and Buffett’s firm will also take a preferred stake of $8 billion, which gets an annual dividend of 9 percent, according to three people familiar with the deal. The people asked not to be identified because the terms are private."