Investors, former Heinz executive believe Buffett acquisition made for long haul

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A Pittsburgh investing firm that bought H.J. Heinz Co. stock about two years ago made a 40 percent profit this morning when it sold more than $9 million worth of the ketchup maker's shares on news that an investment consortium headed by Warren Buffett would acquire the company.

Downtown-based Cookson, Peirce and Co. typically sells its stake in companies when they are acquired and no better deal is expected to come down the road, president Daniel S. Henderson said.

The $28 billion offer announced this morning by Berkshire Hathaway and 3G Capital is a "solid enough deal" that another suitor for Heinz isn't expected, Mr. Henderson said.

Heinz was the firm's 12th largest position and its second-largest local holding after PPG.

The loss of a publicly traded company in Pittsburgh is "bittersweet," but helped by Mr. Buffett's reputation for hands-off management, said Mark Luschini, the Pittsburgh-based Chief Investment Strategist of the Philadelphia investment firm Janney Montgomery Scott LLC.

The famous investor isn't said to have an interest in company takeovers that leave some aspects of the operation gutted, said Mr. Luschini.

While the Heinz announcement came as a surprise, it's the kind of stable company that has become a Buffett trademark.

"The market doesn't need to be open for you to expect that you're going to sell ketchup today and tomorrow and the next day," said Mr. Luschini.

For one thing, increasing population growth in developing countries has created a growing international market as dietary habits expand with economic growth.

The big-ticket deal is expected to generate interest in companies like "consumer staple" stocks like Heinz.

"Investment banking tends to be somewhat copycat-oriented," said Mr. Luschini. Investors will ask themselves, "What was it that Buffett and 3G saw in Heinz?"

Berkshire Hathaway and 3G Capital offered $72.50 in cash per share, a 20 percent premium on Heinz's closing share price Wednesday.

On a broader scale, Mr. Luschini pointed to the fact that the $28 billion acquisition is the third major deal just this week. Comcast announced earlier this week it would spend $16.7 billion to buy the remaining half of NBCUniversal that it did not own from General Electric, and US Airways and American Airlines announced yesterday plans for a merger.

"Many companies are flush with cash and they wouldn't be doing it if they thought the economy looked so weary," said Mr. Luschini. "It's a guardedly optimistic if not outright bullish signal."

Heinz has "been performing really well for a while now," said Mr. Henderson, and has earned a reputation among investors as a "consumer staple" stock that offers reliable dividends and an alternative to low-yield bonds.

Berkshire stock, he added, has gone up on news of the acquisition announcement.

"They're buying a good brand that they intend to own forever, which has always been Warren Buffett's philosophy," he said.

The stability of a company like Berkshire Hathaway will allow Heinz to more aggressively pursue international markets like Indonesia, China, India and Brazil, said Ted Smyth, the former chief administrative officer and senior vice president at Heinz.

Mr. Smyth worked at Heinz for 21 years before retiring in 2009.

"Warren Buffett would have very little interest in the company if it was only in the U.S.," he said.

Mr. Smyth still owns a significant amount of Heinz stock -- "my wife won't let me reveal" how much, he said -- and said he was pleased with the terms of the $23 billion acquisition.

"Today's investor world is a bit volatile," said Mr. Smyth, who now works as an executive vice president at the McGraw-Hill Companies in New York. "I think this will enable a focus to medium- and long-term strategy."

That new focus could include new products and advertising, he said.

Since news of the acquisition broke early this morning, Mr. Smyth said his email inbox has filled with notes of "great buzz" from former Heinz colleagues.

"I've got ketchup in my veins," he said. "You remain a Heinz person for life."

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Erich Schwartzel: eschwartzel@post-gazette.com or 412-263-1455. First Published February 14, 2013 12:30 AM


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