Heinz Case Solution

H.J.
Heinz M&A Case Solution

The potential risk would be imposed to the shareholders as they might not be involved in the
auction process in order to give alternative proposals. In other words, the level of transparency
would reduce to show true picture for the shareholders. Therefore, according to the company’s
perspective, it had some advantages as well as disadvantages through the shareholders’mind-set.
Role of investment bankers
On the other hand, all the companies associated with the acquisition had some investment
advisors for the future consideration of the deal. The main purpose of involving the investment
bankers was to secure the finance against contingencies as they would be subject to provide
financing during the need to recapitalize the structure and to expand the business by borrowing
the debt.
The role of these bankers was to provide the information about the decision of acquisition, which
might increase or decrease the level of market value. Therefore, every company’s advisor
analysed different results in order to know the true value of the company after the process of
acquisition.
An all cash deal for acquisition
According to the current situation, there were some advantages as well as disadvantages with the
use of an all cash deal of acquisition. If the company would pay all the cash excluding the common
stock for acquiring Heinz, then there could be a possibility to reduce the level of reserve and the
liquidation process because the company would use all the cash to acquire.
However, the advantage was to retain the shares and to increase the level of Heinz’s shares in
order to provide large dividends to its shareholders. If the company would be subject to liquidation
during the process, then 3M Company and Berkshire would liquidate their assets in order to
recover the loss, thus it would decrease the level of operations and to damage the overall process.
Market reaction for the acquisition announcement
After the announcement of acquisition for Heinz, the market reaction inPittsburgh was negatively
affected by the citizens as they were quite nervous about the possibility of relocation of business
into other parts of the world.
The reaction from the shareholders was quite favourable to the company because they knew the
current position of Heinz and a potential benefit after the acquisition but not satisfied about the go-
shop strategy implemented by the company.
The competitors within the industry were quite nervous about the potential threat imposed through
the competitive advantage after the acquisition with 3M Company and Berkshire. They were eager
to disagree the process in order to make themselves in a strong position.
Nevertheless, the deal was quite acceptable for the company as well as its shareholders as it
would benefit the entire operations through recapitalize and increase the stock price level in order
to provide additional benefits to its shareholders.
Financial acquirers as prospective buyers
The total deal shows that there was a less amount of debt involved during the acquisition, therefore
any financial institution would avail the opportunity to lend the debt amount for expansion of
operations. This would allow to acquire the majority of shares within the company and could
consider to take decision about the future benefits.
In this case, both acquirers of Heinz had investment bankers, who advised to either merge or reject
the deal. Therefore, the bankers might have the opportunity to show interest in order to purchase
the majority of stocks through lending the amount of money into the operations. This would allow
to increase the level of liquidation within Heinz and to reduce the risk occurred in the go-shop
process and to retain the shareholders benefits for the future dividends by reducing the level of tax
obligations in order to increase the profitability ratio…………
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Issues to Consider for Mergers and Acquisitions
Consider synergies that drive M&A
There were different synergies that can be obtained through the mergers and
acquisitions. Some of the synergies are defined as:
 There will be synergy in operations. Since the acquired company might have
extensive knowledge and the better work methods and procedures which will bring
synergy in the combined operations. Moreover the combined operations of the
cash generating units of both the company will result in better efficiency in the
operations.
 The company might secure new customers by using the customer base of the
acquired company. In this regard the synergy is achieved in a way that the services
that are being provided to the client by the acquired company will be now, as per
demand by the client to give more services offered by the acquirer company,
combined with the acquirer company. The combined service provided will be more
cost effective.
 The company will have cost reduction in the form that the company might eliminate
the excess employees. There will be no need to make new hiring for a certain period
of time that will save hiring costs. The acquired company will have some key
employees that are highly skilled; the company will get additional benefit.
 The company can also sell off the excess assets, such as machinery that is no more
needed or is in excess in the combined asset portfolio. If both the companies has
branches in the same area then one of the branch can be eliminated which will result
in inflow of cash and reduction of cost.
Understand the impact of M&A on key corporate stakeholders

The effect of the mergers and acquisitions on the key corporate stakeholders will be:
Suppliers
The company after acquisition will become large and the production will also increases.
Thus the company will become the large buyer of raw materials. In this way the
company might get the higher bargaining power over the suppliers. The company
might demand to have low cost of raw materials and with the highest quality. More
suppliers will be available to be switch from.
Buyers
The company will get become cost competitive because of the low cost of production.
The low cost of production will be achieved because of the synergies in operations it
obtained through the merger and the low raw material prices. Thus the company can
attract the new buyers by offering high quality products with less cost.
 Founded in 1869 by Henry John Heinz
 Brands include Heinz Ketchup, Ore-Ida, Bagel Bites, Weight Watchers, T.G.I. Fridays
 $11.6 billion global revenue
 Heinz products manufactured on 6 continents
 Marketed in over 200 countries
 650 million Heinz ketchup bottles sold annually
 In more than 140 countries
 Sales greater than $1.5 billion
This Investment was a good investment as long as several conditions are met:
 The management team that takes over for the current Heinz staff effectively cuts costs and
eliminates excess debt
 The company continues global marketing while continuing an aggressive concentration on
primary products
 Heinz maintains its status as a major competitor in the food processing industry
There was a slight decrease in Gross Margin percentage, but Heinz is still comfortably able to cover
expenses and make a healthy profit.
 Purchased for 28 Billion dollars (including debt) by investment firm Berkshire Hathaway
(under CEO Warren Buffett) and 3G Capital
 3G Capital has a history of acquiring companies and inserting a more efficient management
team (Burger King, Anheuser-Busch InBev)
 Stockholders will receive $72.50/share, a 20% premium on February 13, 2013 closing stock
price
 Bernardo Hees, current CEO of Burger King Worldwide, set to become 7th CEO of Heinz,
taking over for Bill Johnson
H.J. Heinz Company
Was this acquisition a good investment for Warren

Buffett and Berkshire Hathaway?
Heinz increased Liquidity by a wide margin, thus allowing it to pay off its current debts with its current
assets.
The Net Working Capital Ratio in 2011 indicated financial distress, but Heinz was able to increase its
Working Capital relative to Debt in 2012. Although Cash flow to Debt Ratio decreased slightly in 2012,
this was a consequence of restructuring of short term and long term debt.
Gross Margin on Net Sales

2010-2012 Profit Margin
Financial Analysis of H.J. Heinz
Although Profit Margin decreased in 2012 (due to an increase in Selling and Administrative
Expenses), H.J. Heinz Company has had relatively stable profit margins over the past several years,
indicating consistent growth.

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H.J.

Heinz M&A Case Solution

Understand the impact of M&A on key corporate stakeholders

H.J. Heinz Company

Was this acquisition a good investment for Warren

Gross Margin on Net Sales

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