Heinz: The headline-friendly LBO

By Felix Salmon
February 14, 2013

Brazilian multi-billionaire Jorge Paulo Lemann’s cunning plan seems to have worked. In 2008, when his InBev announced that it was buying Anheuser-Busch, there was an immediate uproar: sites like Drink American and SaveAB immediately appeared to protest the deal. (“With your help we can fight the foreign invasion of A-B. We will fight to protect this American treasure. We will take to the Internet, to the streets, to the marble halls of our capitals, whatever it takes to stop the invasion.”)

headlines.jpgThis time around, Lemann has decided that he wants to be the American — and he’s done it by teaming up with an American icon even more beloved than Budweiser or Heinz ketchup: Warren Buffett. This is a takeover of Heinz by 3G, make no mistake: Lemann approached Buffett with the idea in December. But look at how this is playing on, say, the NYT homepage: the headlines are all about Buffett and Berkshire, not about Brazil.  This is a leveraged buy-out, just like most other private equity deals, but it’s getting none of the bad press that LBOs often receive, and no one’s talking about “corporate raiders”. (The headline isn’t even accurate: Buffett is paying only half of the $23 billion, with the other half coming from Lemann and his partners in 3G. And it’s unclear what mergers are included in this “revival”.)

It’s easy to see why both 3G and Buffett love this deal. $23 billion is a lot of money, quite possibly more than 3G could comfortably stretch to on its own. So having a partner is attractive to them — especially when the partner is Warren Buffett. On the other side, Buffett gets to buy in to a storied franchise — one, what’s more, which will now be run by the best operators in the world. The 3G folks know the fast-moving consumer goods industry intimately, and can run companies in that industry more effectively and efficiently than anybody else in the world. Pair them up with brands as strong as Heinz’s, and it’s reasonable to assume that Buffett is going to see some gratifying profits from this deal.

This, then, is not a Buffett deal: it’s a 3G deal, with Buffett being brought in as a kind of guest GP. Neither is it, as Peter Lattman says, an indication of “the rise of Brazil as an economic power”, or of the strength of the Brazilian economy. 3G’s principals might be Brazilian nationals, but really they’re part of the global plutocracy, and are as happy with a Belgian brewery as they are with a Brazilian bank.

In a world where private-equity shops are desperate to put their money to work, and where stock-market investors are more conservative than aggressive financiers, we’re going to continue to see more of these high-profile LBOs. Which in turn is going to make the stock market even less relevant than it is today.

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