This H. J. Heinz M&A case study analyzes the merger and acquisition of H. J. Heinz Company in February 2012 by a consortium of two investment firms: Berkshire Hathaway and 3G. It allows students to provide a quantitative and qualitative analysis of the transaction.
David P. Stowell and Nicholas Kawar
Harvard Business Review (KEL848-PDF-ENG)
December 03, 2014
Case questions answered:
- Briefly describe the activities of Nelson Peltz and the role he played in laying the groundwork for the acquisition of H. J. Heinz by Berkshire Hathaway and 3G.
- Briefly discuss the positions of various stakeholders, including Heinz shareholders, management, employees, and citizens of Pittsburgh.
- Explain the “go-shop” process. Why may it be necessary? Are there any risks associated with it?
- Why were so many investment bankers involved in this transaction, and what were their respective roles?
- What was the acquisition premium? Was this reasonable?
- Complete a valuation of Heinz for this acquisition based on the provided actual financial information. Develop a football field valuation analysis, stating reasons why you selected certain companies to include in your comparable companies and comparable transaction analyses.
- Why did this transaction propose zero synergies? Discuss and quantify potential synergies that could be realized, including where they come from and the period of time over which they can be realized, and quantify the impact on enterprise valuation.
- What was the market reaction to the acquisition announcement, including share price and equity analyst commentary?
- What was the reason for an all-cash transaction, and what are the disadvantages of this form of consideration (as opposed to using common shares as consideration)? What are the principal risks and benefits of this transaction for 3G and Berkshire Hathaway?
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H. J. Heinz M&A Case Answers
This case solution includes an Excel file with calculations.
1. Briefly describe the activities of Nelson Peltz and the role he played in laying the groundwork for the acquisition of H. J. Heinz by Berkshire Hathaway and 3G.
Nelson Peltz founded Tiran Fund Management and became CEO. He tends to invest in underperforming or undervalued companies and then strategically restructure them, improve operational management, adjust capital allocation, and other measures to increase the value of the company (CNBC, 2019). For this reason, he is also known as an aggressive investor. He was an active character in the acquisition of H.J. Heinz by Berkshire Hathaway and 3G.
In the case of the merger between Heinz and Kraft, Nelson Peltz, as one of the principal investors, conducted a series of radical reforms to Heinz, including cutting non-core costs, restructuring the company, firing a number of employees, and launching a share buyback program, based on market research and analysis of Heinz. These measures have been proven effective, boosting investor confidence. Eventually, H. J. Heinz and Kraft’s merger was completed.
2. Briefly discuss the positions of various stakeholders, including Heinz shareholders, management, employees, and citizens of Pittsburgh.
Heinz Shareholders: H. J. Heinz has had a mediocre operating performance for many years and has not contributed too much to shareholders. Therefore, as the decision-maker of the company, selling the company to potential investors has become an option. After the operation reform participated by investors, the successful sale of shares and the successful cash out will be a positive result for the shareholders.
Heinz Management: The merger avoided a major Management change, but the CEO went from being a Heinz family member to a professional manager. For management, this is a positive change. Under the new operation management mode, the company’s performance may make great progress.
Heinz Employees: This acquisition is both an opportunity and a challenge for Employees. Competent Employees will be retained and may even get a raise in the future, while incompetent Employees will lose their jobs.
Citizens of Pittsburgh: After the acquisition, the company will still be headquartered in Pittsburgh, ensuring local employment and tax revenue for the benefit of local residents. If the performance of the merged company improves, it will be a better thing for local citizens.
CEO William Johnson will receive a “golden parachute” of $ 56 million if he is not retained by H.J. Heinz after the mergers and $40 million if he quits under the regulatory fillings but is undervoted by shareholders. Compensation was granted if the merger was completed, regardless of the vote.
J.P. Morgan, Lazard, and Wells Fargo were advisors retained by 3G and Berkshire.
Merrill Lynch, Centerview, Moelis & Co. were advisors retained by Heinz.
Competitors: The industry was said to be ripe for other such transactions after the completion of the H. J. Heinz merger, and competitors saw…
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