Scarfing up American brands: Heinz is one of many U.S. brands recently bought by emerging-market firms
April 21, 2013 8:00 AM
By Afshin Molavi
It's Saturday night and you want to see a movie. You fire up your IBM ThinkPad and check the listings. The local AMC theater is showing "Iron Man 3," the blockbuster partly filmed in China. You hop in your Volvo, fill it with gas and settle down in your seat with your popcorn.
The latest in the "Iron Man" series, to be released May 3, represents a new Hollywood wave: catering to massive Chinese audiences with scenes shot in the Middle Kingdom.
The IBM ThinkPad? That's owned by a Chinese company, Lenovo. They bought IBM's PC business in 2005 for $1.75 billion.
The theater? Also Chinese-owned. The Dalian Wanda Group bought AMC Theatres, America's second largest cinema chain, for $2.6 billion in 2012.
The gas? That could come from anywhere, but since Canada is America's largest supplier of crude oil and the China National Offshore Oil Co. now owns Nexen, one of Canada's largest oil and gas producers, it may well have been CNOOC gas filling your tank.
OK, so at least you have the Volvo, the symbol of all things Swedish. Volvo is owned by Geely, a Chinese state-owned automaker, purchased from Ford Motor Co. for $1.5 billion in 2010.
Your popcorn, at least, is most likely made from American kernels. As for the machine that pops it, well, that probably was made in China.
Amazingly, a recent poll found that 94 percent of Americans could not name a single Chinese brand. This caused a minor stir in the circles that stir over such things, but it's not the real story. The real story involves Chinese companies -- and others from emerging markets -- making a major push to buy American and Western brands and companies.
Take the recent purchase of H.J. Heinz Co. What could be more American than Heinz ketchup? It sits in refrigerators and restaurants -- both humble and high-end -- across the land. Its name adorns the stadium of one of the NFL's most storied football franchises, the Pittsburgh Steelers. It's a global American icon, standing alongside the likes of GE, McDonald's, Coca-Cola and Boeing.
It's no wonder, then, that another American icon, the investor Warren Buffett, would seek a piece of the Heinz story. His firm, Berkshire Hathaway, last month helped finance a $23 billion private equity investment to acquire the company. What could be more American that?
But the company leading the purchase of Heinz is a Brazilian private equity firm, 3G. Never heard of it? Well, 3G also happens to own Burger King Corp., which it bought for $3.3 billion in 2010, expanding the franchise's reach and increasing shareholder value.
Demographically and by all economic indicators, emerging markets will drive future global growth. By the year 2025, nearly two out of every three humans on Earth will live in Asia. Sub-Saharan Africa's population could double by 2036, according to the World Bank. While the eurozone is headed for another year of contraction and other advanced economies grow modestly, emerging markets are expected to average near 6 percent growth over the next couple of years.
The world's most populous region, East Asia and the Pacific, is also the fastest growing. According to a World Bank report issued last week, the region contributed 40 percent of global growth in 2012 and will see an average of 7.7 percent growth over the next two years. Meanwhile, Sierra Leone, Niger, Cote d'Ivoire, Liberia, Ethiopia, Burkina Faso and Rwanda continue to rank among the fastest-growing in the world.
Yes, you've been reading these headlines for two years. But the new story is the rise of emerging market multinationals. As they grow, they are becoming more acquisitive, buying well-known Western brands, and creating some powerful brands of their own.
Thus far, the narrative of emerging markets told in the West has been one of investment opportunities -- focusing on the BRICS (Brazil, Russia, India, China and South Africa) and the search for the next set of up-and-comers. Now, it's a story of emerging-market companies coming to the West.
In 2008, the Belgian-Brazilian brewer Inbev acquired American beverage giant Anheuser-Busch. The deal was engineered by Brazilian billionaire Jorge Paulo Lemann, head of 3G Capital. Yes, the 3G Capital that partnered with Warren Buffett to buy Heinz. From the beer you drink to the burgers you eat to the sauces that flavor your meat and fries, Mr. Lemann has a hand in it.
Of course, foreign ownership of American brands is not new. But "foreign" used to mean European. Europe-based multinationals and investors own a bevy of American brands, though the names may surprise many: Gerber, Holiday Inn Hotels, Vaseline, Hellman's Mayonnaise, Alka-Seltzer, Ray-Ban, LensCrafters, Lysol, Woolite, Motel 6, Trader Joe's and on and on. Even the popular television show "American Idol" is owned by a Germany-based media conglomerate, Bertelsmann.
Emerging-market investors are now joining in. China's Lenovo led the way when it purchased IBM's PC business in 2005. The Milwaukee-based Miller Brewing Co. is owned by SABMiller, a company launched in South Africa in 1895 and now based in London. Chrysler Motors is owned by Italy's Fiat and the iconic Chrysler Building in New York City is owned by the Abu Dhabi Investment Council.
Even America's once-impoverished but now surging neighbor to the south, Mexico, is taking part. Grupo Bimbo, a Mexico-based food conglomerate, bought the North America bakery operations of cake-maker Sara Lee in 2011. It was even rumored to be eyeing bankrupt Hostess Inc. -- a Mexican company potentially coming to the rescue of the Twinkie. (Hostess was later bought by an American private equity group.)
Perhaps the most honest accounting of this larger trend came from Heinz CEO William Johnson, who told the Wall Street Journal in February: "We've been prospecting in the emerging world for a long time, and now they're prospecting here."
Twenty-five years ago, the only non-Europeans buying Western brands were Japanese. Today, Jaguar and Land Rover, the British auto icons, are owned by India-based Tata Motors in a delicious irony of post-colonial economic rejiggering. Since 2005, emerging-market companies have acquired more than 3,100 companies in developed economies, according to KPMG's Emerging Markets International Acquisition Tracker. A third of the targets have been in the United States -- and Chinese companies have had the most voracious appetite.
Cash-rich emerging-market investors are also building their own world-famous companies. Dubai-based Emirates airline has become a respected global brand, inspiring regional competitors such as Doha-based Qatar Airways and Abu Dhabi-based Etihad Airways. Today, the Persian Gulf "Big Three" plus Turkish Airlines have stolen a march on European aviation powerhouses by cutting into their lucrative long-haul routes to Asia, forcing them to cut costs and shelve growth plans.
The European carriers are on the ropes. Lufthansa recently noted on its website, "It is a question of time before Europe's connections to other regions will be conducted only via the Gulf states." To fight back, the German airline reportedly is considering an alliance with Turkish Airlines, the only carrier going toe-to-toe with the Gulf behemoths in route growth.
These are not just headlines from the business pages. Take a walk in any major American urban center and "Emerging Markets Inc." is everywhere.
Stroll down Connecticut Avenue in Northwest Washington, D.C. That Godiva shop on the corner, a bastion of Belgian chocolate elegance founded in 1926, is now owned by a Turkish confectionery. No cash to buy a chocolate? Walk over to the ATM belonging to HSBC, a leading bank founded in Hong Kong in 1865.
Need a coffee with that chocolate? Wander over to Caribou Coffee, owned until recently by a Bahrain-based private equity firm. Still hungry? Have lunch at Nando's, a South Africa-based restaurant chain founded in 1987 and operating in 25 countries. Nando's plans to open 25 new restaurants across the United States by 2015.
Need to book a flight to Asia? Walk a few blocks to local offices of the Gulf Big Three, all of whom now operate direct flights to their hubs from Washington, D.C., and connect to your beach vacation in Phuket or Bali, business trip to Shanghai or Jakarta, or family visit to Mumbai or Colombo. And pay for your entire trip with your China Union Pay credit card, increasingly accepted in the United States and the second-largest credit card company in the world by transaction volume.
The emerging-markets tide still has a long way to rise. It's not going to end with ketchup.