Negotiations that led to a $28 billion cash-and-debt deal to sell Pittsburgh's H.J. Heinz Co. began in early December when 3G Capital partner Jorge Paulo Lemann met with Warren Buffett, chairman and CEO of Berkshire Hathaway, and proposed their two companies do a joint venture.
Mr. Buffett was clearly interested. By Valentine's Day, the deal to take Heinz private was being announced to the investment world.
Details of the negotiations, and estimates of how Heinz executives could be compensated as a result of the merger, were laid out late Monday in a preliminary proxy filing the company made to the Securities and Exchange Commission.
The filing confirms earlier reports that the Heinz board negotiated for and received a higher price than originally offered, kicking a $70-per-share offer up to the $72.50-per-share deal eventually agreed upon.
The deal still needs shareholder and regulatory approval, although the company expects it could go through by the third quarter.
Although a post-acquisition management structure has not been laid out, the filing indicates that 11 current and two former Heinz executives stand to receive more than $150 million in severance and other compensation if the acquisition is completed Aug. 1 and they are terminated or resign for good reason following the merger.
In that scenario, Heinz chairman, CEO and president Bill Johnson would receive $56 million, including $14.4 million in severance, $30.5 million from the accelerated vesting of stock options and restricted stock, $8.6 million in incentive payments and nearly $1 million in insurance benefits.
"The payments reflect Mr. Johnson's success in creating billions of dollars in shareholder value over his successful 15-year tenure as president and CEO," said Michael Mullen, senior vice president of corporate and government affairs. He added that the compensation consists of equity that Mr. Johnson accumulated over his 30-year career with the company, including provisions in place long before merger was proposed.
The two retired executives, Michael D. Milone and C. Scott O'Hara, would collectively receive $9.6 million from accelerated vesting of options and restricted stock they continue to own after retiring last year.
According to the merger timeline laid out in the filing, Mr. Johnson first met with Mr. Lemann and Alex Behring -- managing partner with New York-based 3G Capital -- for dinner Dec. 18, but no proposal was made at that time. On Jan. 10, Mr. Behring came to Pittsburgh again and said an offer would be made. Mr. Johnson said Heinz wasn't for sale, but he would alert the board.
The official acquisition proposal was delivered Jan. 14.
Among the issues the Heinz board and its advisers considered through the review process were the risk of the company continuing on a standalone basis in light of "generally unfavorable macroeconomic trends," including high unemployment and volatility in commodity costs, as well as the company's ability to support its quarterly dividend.
They looked at the potential that the company would receive other offers. Financial advisers felt that only a few companies in the food and beverage industry would be capable of buying Heinz and those were unlikely to be candidates.
In addition, the board discussed "the impact of a potential sale of Heinz on the city of Pittsburgh, Pa., as well as whether the investors would be willing to provide a commitment to maintaining Heinz's presence and heritage in Pittsburgh," according to the filing. A commitment to that effect was written into the contract.
On Jan. 22, the board's representative alerted 3G Capital that Heinz wasn't likely to keep discussing the deal unless the investors improved their offer. On Jan. 24, the higher number came in, described as the "best and final" offer.
By Feb. 11, Mr. Johnson, Mr. Behring and Mr. Buffett were doing lunch in Omaha, Neb. On Feb. 13, the board met in Pittsburgh to officially consider the offer. The vote was unanimous.