John Bick, 54, the head of the corporate department at Davis Polk & Wardwell
H.J. Heinz Company, the Pittsburgh-based producer of ketchup, steak sauce, and a variety of other food products.
Berkshire Hathaway and 3G Capital announced Thursday that they have agreed to acquire Heinz in a deal worth $28 billion, including the assumption of debt.
Berkshire, billionaire investor Warren Buffett’s investment vehicle, and 3G, a Brazilian-backed investment firm, will pay $72.50 in cash for each share of Heinz—a 20 percent premium over the company’s Wednesday closing price. The New York Times reports that Berkshire and 3G will each contribute roughly $4 billion to the deal, with Berkshire adding another $8 billion for Heinz’s preferred shares. The remainder of the price will come from debt financing provided by J.P. Morgan and Wells Fargo.
The deal is expected to close in the third quarter of this year, pending the approval of regulators and Heinz shareholders.
Berkshire is being advised by longtime outside counsel Munger, Tolles & Olson, while Kirkland & Ellis is representing 3G, according to our prior reporting. Wachtell, Lipton, Rosen & Katz is advising a special transaction committee of Heinz’s board.
THE BIG PICTURE
Berkshire and 3G are acquiring Heinz—which saw its stock rise as much as 17 percent in the year before the deal was announced—about a month after the company’s shares hit an all-time peak of $60.96. Factor in the 20 percent premium, and the two investors are buying high on a company that appears to fit neatly in a Buffett portfolio that already includes such iconic American brands as Dairy Queen and Fruit of the Loom. Heinz also complements 3G’s existing investments, which include various food and beverage companies and a majority stake in Burger King.
Buffett, who said two years ago that Berkshire was on the prowl for major acquisitions, said Thursday the Heinz purchase does not sate his appetite for mega-deals and that Berkshire has more than enough capital to make other big buys in the near future. ( CNBC reports that Berkshire had $47 billion in cash at the end of 2012.)
Any such acquisition would further fuel an M&A market that has been red-hot in recent weeks. The Heinz deal was announced the same day as the proposed $11 billion merger that would unite bankrupt American Airlines parent AMR and US Airways Group. Earlier in the week, Comcast agreed to pay $16.7 billion to acquire the 47 percent stake in NBCUniversal it does not already own. (Davis Polk advised Comcast on that deal as well.) Those transactions came close on the heels of the announcements that Dell Inc. founder and CEO Michael Dell was teaming with Silver Lake Partners on a $24.4 billion leveraged buyout of the computer maker that bears Dell’s name and that international cable giant Liberty Global had agreed to pay $23.3 billion, including debt, to acquire Virgin Media.
Bick tells The Am Law Daily that the string of big deals is boosting confidence within the M&A market and that he expects the uptick to continue. In recent years, he notes, many American companies have found themselves both flush with cash and carrying little debt—a set of circumstances that would normally spur an increase in major transactions. "You would have thought there would be a lot of deal activity, but there really hasn’t," he says. "The markets have been okay, but sort of suppressed."
Various factors, according to Bick, have helped stall the flow of deals, including uncertainty surrounding the outcome of last year’s U.S. presidential election, Congress’s so-called fiscal cliff standoff, and, especially, the European debt crisis. Now that the election is over, a temporary fiscal cliff compromise is in place, and the European economy appears to be stabilizing, Bick says the domestic M&A market is gaining momentum: "I do think there’s a lot of pent up demand and people are finally saying ‘I can do this now while there’s less uncertainty, less risk in the market.’ " The food and beverage industry specifically, he says, may be ripe for more dealmaking: "We’ll see, but the Heinz deal could be a catalyst for some other transactions."
Bick says that he and several Davis Polk colleagues have been working with Heinz for nearly two decades and have generally served as the company’s regular outside counsel. One of the firm’s earliest Heinz assignments, he says, involved the sale of the company’s Weight Watchers business for about $735 million to Artal Luxembourg S.A. in 1999. That same year, Bick was part of a Davis Polk team that advised Heinz on its acquisition of a 19.5 percent stake in Hain Celestial Group. He reprised that role when Heinz sold its Hain stake in 2005. Three years ago, Bick advised the company again in connection with its $165 million purchase of Foodstar from Transpac Industrial Holdings.
At other points during the firm’s relationship with Heinz, Davis Polk has also worked on a variety of financings and advised the company in its 2006 proxy battle with the hedge fund Trian Group.
As CNBC reported, 3G instigated the deal, approaching Buffett in December about the possibility of acquiring Heinz. By mid-January, the two companies had made an offer, setting the stage for what proved to be a quick round of negotiations ahead of Thursday’s announcement.
Bick says Heinz called Davis Polk in shortly after Berkshire and 3G expressed their interest. From that point, he says the firm operated on "a pretty aggressive time line" to steer the deal to signing. One explanation for why the deal talks moved so quickly, Bick says, is that, as with any transaction involving a publicly traded company, all of the parties involved were wary about word of the negotiations leaking and affecting the market. Mainly, though, he believes the buyers had the confidence to make an offer that was attractive enough to prevent the talks from dragging out. Says Bick: "Mr. Buffett and 3G, they know how to do deals."