Heinz_Final_20140915 - ©2014 by the Kellogg School of...

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©2014 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor David P. Stowell and Nicholas Kawar ’14. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 847.491.5400 or e-mail [email protected] No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Kellogg Case Publishing. DAVID P. STOWELL AND NICHOLAS KAWAR ’14 5-413-757 H. J. Heinz M&A In December 2012 Jorge Paulo Lemann, a co-founder and partner at investment firm 3G Capital, proposed to Warren Buffett that 3G and Berkshire Hathaway acquire H. J. Heinz Company. After negotiating the purchase price, Heinz agreed to continue discussing the acquisition. Although the food industry was mature, 3G and Berkshire Hathaway saw opportunities for Heinz both in expanding into emerging markets and realizing operational efficiencies in production. Investment bankers representing both sides agreed that the acquisition was valued fairly. But was this, in fact, a fair deal? What could be the future consequences for shareholders, management, employees, and citizens of Pittsburgh, where Heinz had long been headquartered? Also, what was the role of activist investors in bringing Heinz to this deal stage? Proxy Fight Six years prior to the acquisition talks, in 2006, the market overall was booming: companies signaled record profits; merger and acquisition (M&A) activity was strong; and markets were showing signs of recovery from the dot-com crash of the early 2000s. The story was the opposite for Heinz: quarterly losses piled up and shareholders demanded immediate changes. Pressure for improvement was fierce, especially from Nelson Peltz, the outspoken activist investor who had recently acquired a 5.4 percent stake in Heinz through his investment fund, Trian Fund Management L.P. Peltz demanded that the company either be sold, or shed non-core assets, aggressively repurchase stock, and trim the fat that had built up under the watch of William Johnson, Heinz’s CEO. Peltz demanded that he receive five board seats to add real management oversight to the weakening company. In June 2006 Heinz announced a massive restructuring that eliminated more than 2,700 employees, closed fifteen factories, and initiated a $1 billion share buy-back. Heinz’s effort to retain control of the company by embarking on this turnaround plan was only partially successful. Ultimately, Peltz was able to secure two board seats on the twelve- person board. The foundation had been paved for a potential sale of the company down the road.
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