New Heinz owners Berkshire, 3G Capital have little in common
The future owners of the H.J. Heinz Co. and its globally recognized brands are a study in contrast.
Berkshire Hathaway chairman Warren Buffett is known for acquiring companies that offer widely known brands, have solid balance sheets and generate cash. The homespun Oracle of Omaha favors companies blessed with good management that require very little tinkering.
The principals of 3G Capital, the New York private equity firm teaming up with Mr. Buffett to acquire Heinz for $28 billion, have a reputation as methodically efficient acquirers who specialize in rehabilitation projects. The firm is known for quickly identifying cost savings and swiftly achieving them.
Their corporate makeovers include Anheuser-Busch, the fallen King of Beers acquired in 2008 by InBev. The Belgian brewer's growth was engineered by a trio of investors that included Jorge Paulo Lemann, 3G's co-founder. They got their start by acquiring a Brazilian brewery in 1989.
Heinz employees and the city that has been home to Heinz since 1869 anxiously await how the good cop, bad cop partnership will play out.
"It seems like a very interesting match," said Brian Davis, a Penn State finance professor. "Usually, Buffett likes to do deals by himself."
Berkshire and 3G have some things in common. Mr. Buffett ranks fourth on Bloomberg's Billionaires list, with an estimated net worth of $53.2 billion. Mr. Lemann, a Harvard business school graduate who played in the Davis Cup tennis matches for Switzerland and Brazil, ranks 37th with a net worth estimated at $19.1 billion.
Mr. Buffett made what he termed "an all-in wager on the economic future of the United States" in 2010 when Berkshire Hathaway acquired Burlington Northern Sante Fe, one of the nation's largest railroads. Alex Behring, the 3G managing partner who will be the point man in managing Heinz, revitalized America Latina Logistica, building it into Latin America's largest railroad. He served as the railroad's CEO from 1998 through 2004. Four years later, he won a board seat on CSX following a bruising proxy fight in which the Jacksonville, Fla., railroad sued 3G and its allies.
Mr. Behring "enthusiastically embraced the railroad business and made it his business to know everything about it as quickly as possible," said Henry Posner III, chairman of Railroad Development Corp. He said the Green Tree rail investment and management company's holdings include a minority stake in ALL's Argentine subsidiary.
In addition to Burlington Northern Sante Fe, Berkshire has invested in a wide swath of American industry: insurer Geico; Benjamin Moore paints; Fruit of the Loom; Dairy Queen; Pampered Chef; Dow Chemical; Bank of America; and Net Jets, operator of the world's largest fleet of private jets.
Mr. Buffett was a one-time investor in US Airways, which is seeking regulatory and court approval for an $11 billion combination with bankrupt American Airlines.
Berkshire also owns stakes in the Buffalo News and other newspapers; Lubrizol, a Cleveland specialty chemicals company; natural gas pipelines; and a distribution business that sells groceries and other products to Wal-Mart, 7-Eleven and other retailers.
In 2008, Mr. Buffett helped Mars become the world's largest candy maker by providing $6.5 billion for its $23 billion acquisition of W. Wrigley, the maker of Juicy Fruit, Life Savers and other candies.
At the Buffalo News, Mr. Buffett was not involved in day-to-day operations of the newspaper, according to former editor Margaret Sullivan.
"Warren Buffett is not a micro manager in any sense of the word. He invests in companies he believes are already well run and then his practice is to get out of the way," said Ms. Sullivan, who is now public editor of The New York Times.
The changes 3G made at Anheuser-Busch after the 2008 takeover are typical of its management style and business model, said one beer industry analyst.
"They find synergies. They find places to cut costs. They do it really well and they do it very quickly," said Eric Shepard, executive editor of Beer Marketers Insights, a Suffern, N.Y., research firm.
Mr. Shephard said 3G also is known for making its suppliers wait longer to be paid.
"They're so big that they can do that," he said.
Burger King was another of 3G's restructuring projects. The private equity firm acquired the fast-food operator in 2010 and took it private. Mr. Behring resigned from CSX's board in 2011, citing time commitments at Burger King.
"That company was a mess," Mr. Davis said.
3G Capital took Burger King public last year.
As much as 3G Capital thrives on makeovers, its partner in the Heinz transaction relishes stable, well-established companies with a proven track record and potential.
Heinz "fits Buffett's acquisition policy almost perfectly," said University of Pittsburgh finance professor Jay Sukits. "Buffett has always demanded really good management so he can keep management in place," he said.
Mr. Buffett also has been an opportunistic investor who strikes when fear and risk dominates financial markets.
When cash and credit were scarce during the 2008 financial crisis, Berkshire invested $8 billion in the preferred stocks of investment banker Goldman Sachs and General Electric, which was saddled by its ailing GE Capital arm. Berkshire collected 10 percent dividends on the investments until Goldman and GE repurchased the shares three years later.
While Pittsburgh thinks of Heinz as a huge company, it will hold a much smaller place in the portfolios of Berkshire Hathaway and 3G.
Berkshire's businesses collected revenue of $116.7 billion in the first nine months of last year compared to the $11.6 billion in ketchup, pickles, relish and other products Heinz sold in its most recent fiscal year. Anheuser-Busch InBev has annual revenue of about $40 billion.
First Published February 15, 2013 12:00 am