Investment Banking Case Study: H.J. Heinz M&A (KEL848)

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Heinz has been very successful in the retail food industry, particularly in the production of sauces and condiments. It is a multinational food producer and has always been competitive in the global marketplace. It has established its name in the production of pre-packed branded foods. On the other hand, 3G Capital is a multinational, which focuses on the long-term value of brands and businesses, particularly on emphasizing their potentials. It has been known globally for a long time due to its operational excellence, management involvement, expertise, and extensive global network.
Meanwhile, Berkshire Hathaway ranked third on the list of largest public companies in the world, according to Forbes Global 2000. It was also on the tenth place on the list of largest conglomerates based on revenue and was proclaimed to be the most significant financial services company in the whole world. These companies are well known, and it is no doubt that their merger will bring them more profits and success in the future.
In 2013, 3G Capital and Berkshire Hathaway offered Heinz that they would acquire 100% of the shares of the latter. After various negotiations, the offer was accepted, and the merger transpired. For the offer to be accepted, many factors were considered, especially the selling price of the shares. Upon comparison of the price offered by 3G Capital and Berkshire Hathaway with the closing price of the shares on the day before the day of the sale, it was proven that it was a lot higher.
The board of directors of Heinz made a unanimous decision on the Company's merger with Berkshire and 3G. Heinz’s shareholders were in favor of the proposal, mainly because they are being acquired by an entity that has established itself in the industry. Since they own shares of the Company, shareholders are entitled to the right to vote and to protect the whole Company from the potential risks associated with the transaction. Should the merger transpire, they will receive $72.50 in cash for each common stock they own. This was considered an excellent deal for the shareholders of Heinz as this means an almost 30% premium to the estimated fair value of $56 and a 20% premium to the closing stock price on the day before the announcement. The offer was in favor of, not only because of the amount they will receive but also because they were not performing very well recently, as shown in their new fundamentals.
Heinz’s management was also excited about the merger since this will mean expansion and exposure to more significant opportunities for the Company as a whole. Their principal role includes the protection of shareholders by always making sure that they are informed and engaged in the deals and agreements entered by the Company. Furthermore, Heinz’s management is also tasked to engage its employees in addressing various employee concerns.
3G Capital and Berkshire Hathaway were interested in merging with Heinz because the latter has a strong branding, discipline in its cash flows, and robust management. The acquirer also believed that Heinz will potentially have a step-up in its profit margins a few years from now as it completes its overhaul of informatio...