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Buffett-led investor group to buy Heinz for $28B

The world’s ruling brand in tomato ketchup is poised to be taken private through a friendly US$28 billion cash offer from Warren Buffett’s Berkshire Hathaway and New York investment firm 3G Capital.

The two companies’ investment consortium announced Thursday it had signed a "definitive merger agreement" to buy up all shares of Pittsburgh-based H.J. Heinz Co. for $72.50 per share, including the company’s outstanding debt (all figures US$).

"The Heinz brand is one of the most respected brands in the global food industry and this historic transaction provides tremendous value to Heinz shareholders," Bill Johnson, CEO of publicly-traded Heinz, said in a joint release.

The Berkshire/3G consortium’s offer comes at a 20 per cent premium to Heinz’s Wednesday closing share price of $60.48, a 19 per cent premium to its all-time-high share price and a 30 per cent premium to its one-year average share price, the company noted.

"As a private enterprise, Heinz will have an opportunity to drive further growth and advance our commitment to providing consumers across the globe with great-tasting, nutritious and wholesome products," Johnson said.

Worldwide, Heinz booked $923 million profit in fiscal 2012 on $11.649 billion in revenues, down from $989.5 million on $10.707 billion in 2011. Its ketchup and sauces business alone reported over $5.23 billion in sales in 2012.

The company’s Canadian arm employs over 1,200 people, based largely in the company’s three Ontario processing plants at Leamington, St. Marys and Etobicoke, making retail and foodservice products including ketchup, tomato juice, vinegar, chili sauce, baby foods, canned beans and pastas.

Heinz bills its Leamington facility as its second-largest plant in the world.

Described by Heinz as "the heart of Ontario’s tomato-growing region," Leamington, about 40 km southeast of Windsor, was Henry Heinz’s choice for his business’ first expansion outside the U.S., starting by processing pickles in 1909 and tomato ketchup in 1910.

The company, which has its Canadian headquarters in Toronto with offices in Calgary and Montreal, bought the former Unifine Richardson processing plant for dressings, sauces and toppings at St. Marys in 2004 and undertook a "significant expansion" at that plant in 2006.

Heinz also took over Canadian production of Catelli, Gattuso, Classico and Bravo pasta sauces when it bought U.S.-based Borden Foods in 2001, moving that company’s Montreal processing operations to Leamington the following year.

Heinz’s other non-Heinz brands in Canada include A1 Sauce, HP Sauce, Diana Sauce, Lea and Perrins, Renee’s Gourmet and Arthur’s smoothies. The company also bought and absorbed the Libby’s brown beans and pasta businesses in Canada from Nestle in 1996.

"Related investments"

Heinz’s Canadian arm has also made its presence known in southwestern Ontario’s ag sector, encouraging the use of mechanical harvesters by local producers starting in 1971.

The company started a Canadian tomato breeding program in 1979 and introduced tomato varieties in Canada better suited to mechanical harvesting in 1984. It also began using greenhouses in the Leamington area in 1990 to start its Canadian tomato seedlings.

As of 2011, the company had contracts with 46 independent growers, producing Heinz tomatoes from Heinz seed on about 5,500 acres within 100 km of Leamington. Its harvest from the region that year totalled about 214,000 Imperial tons.

About 98 per cent of the tomatoes used in Heinz ketchup in Canada are grown in the area, the company said.

Berkshire and 3G said Thursday they’ve pledged to maintain Pittsburgh as Heinz’s global headquarters and to "fulfill and continue its philanthropic support of community initiatives and related investments."

"We approached Heinz to explore how we might work together to expand the value of this storied brand," 3G managing partner Alex Behring said. "We fully recognize Heinz’s value and heritage and look forward to working together with Heinz’s employees, suppliers and customers as we invest in and support the company’s ongoing global growth efforts."

The deal still needs approval from Heinz shareholders and, where required, federal regulators, and is expected to close in the third calendar quarter of this year, the companies said.

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