H.J. Heinz M&A Case Solution & Answer

H.J. Heinz M&A Case Solution


One of the leading food products’ company – H. J. Heinz Company, was founded by Henry J. Heinz, which initiated its operation in 1869. The company is known for offering approximately sixty products, allowing the organization to adopt the slogan of 57 product varieties. Heinz was listed on the New York Stock Exchange in the year 1946, and then it began to be known as the first food processing company in the United States. In 1978, the organization significantly initiated the acquisition of different companies with the core purpose of bringing an improvement in the profit margins and adding more products to the products’ portfolio. The key competitors of the organization in the food industry, include: Nestle, Kraft Food, Campbell and ConAgra Foods etc.

Problem Statement

Despite the significant performance of the organization in last few years; the food industry in the United States tends to demonstrate a number of issues in terms of growth. Therefore, in order to remain competitive in the market and to bring a significant improvement in the global presence, the organization is required to acquire different strategic approaches i.e. 3G and Berkshire Hathaway. The proposal represented by the 3G and Berkshire Hathaway demonstrated the share price value to be around 72.50, with approximately 28 billion total transaction value. Thus, the organization requires the evaluation of the proposal regarding whether the acquisition will be beneficial for the organization or not.

Question-0: Describe the activities of Nelson Peltz and the role he played in laying the groundwork for the acquisition by Berkshire Hathaway and 3G.

Mr. Nelson Peltz played the fundamental role after getting a stake of 5.4% in the company.  After acquiring the stake, he demanded real control in the management of the company, which he got in terms of two seats on the board. After analyzing the overall market conditions and its comparison with Heinz, the company is incurring useless cost that should be cut in order to focus on some growth opportunities. For this, a massive restructuring took place in which about 27000 employees were fired and a share buyback program was initiated. In addition to this, he was the one who proposed to sell the firm due to its poor performance.

Nelson Peltz wanted the company to reduce the non-core assets and other extra activities by use of liquidation in order to recapitalize for expansion in the operation size and efficiency. They proposed that Heinz should repurchase the stocks from liquidation and try to reduce the risk of over-costing. After the tiring efforts of the active shareholders, the company succeeded in proving itself as an attractive prospect for the buyers to buy, which is evident from the proposal of 3M and Berkshire who were jointly interested in buying H.J Heinz for a price of $72.50 per share.

The overall investment interest of Mr. Shareholder in the company are in such a way that 3,250 shares were held directly and the similar amount indirectly, which are held by Trian Fund Management of which Mr. Nelson was CEO. In addition to this, Trian Fund Management owns shares of about 100,000. With this much percentage of ownership as well as the increased reputation, Mr. Nelson succeeded in getting the buyers with the attractive bid for Heinz.

Question-1: Evaluate conceptually and strategically the positions of various stakeholders including; (i) Heinzshareholders (ii) management (iii) employees and (iv) the Pittsburgh community.

Stakeholders and the Importance of Transaction to Them

Heinz has a number of stakeholders who tend to be affected by the acquisition. These stakeholders include: shareholders, management of the company, employees and the citizens of Pittsburgh. Shareholders’ major stake in the Heinz is to increase the share price and to achieve the maximum amount of possible premium on shares. The management’s stake is to continue the operations at Heinz, with a certain level of profits to increase their salaries. Employees’ major stake in Heinz is the continuation of their job and their position to maintain the amount of salary they get every month from the company. Moreover, the major stake of the citizens of Pittsburgh is to keep getting the quality goods from the company at a reasonable price.

Nelson Peltz is one of the most important people for Heinz. He is a realistic as well as a  dynamic speculator, who has procured5.4 percent shares in Heinz as of late. He has procured his Stake from his venture assets from Train Fund Management. In the wake of gaining stakes in Heinz, he has set different expectations, for example: selling of non-center resources, repurchasing of stock more forcefully and minimizing or excluding pointless overhead and resources, which disintegrated the organization under any monetary difficulty. He additionally requested his portrayal in the leading group of governors by soliciting 5 board situates out from 12. Not long after this, the organization started a gigantic redesign of the organization on the exhortation of Nelson Peltz, to bring the organization on the right track again. They terminated in excess of 2700 Heinz representatives, shutdown 15 plants which were non-beneficial or were having superfluous activity and repurchased Heinz’s offer of more than 1 Billion dollars. The  dominant parts of Peltz’sproposals and requests were acknowledged and he likewise got 2 board situates out of 12 seats, in the leading group of governors of the organization. So his requests and suggestions established the framework for the procurement of Heinz by 3G and Berkshire Hathaway. So we can presume that Nelson Peltzwas the individual answerable for obtainment of Heinz as the turnaround begun by Nelson Peltz was fruitful enough to draw in the procurement with the goal that they were keen on securing Heinz.

Question-2: What is the purpose of the “Go-shop” process? Rationalize why it may be necessary and consider the risks associated with this process.

The go-shop process helps the target company in getting optimal price for their company by reviewing alternative proposals. The process starts after the merger agreement is signed with the prospective buyer.Furthermore, on termination of such an agreement, the target company is required to pay a termination fee, which in the given case is about $ 750 million. The termination fees would be paid in case if Heinz decides to sell itself to another prospective buyers rather than the current buyer.

The overall impact of this process is that it helps in getting the optimal price after locking the first offer price. If the company gets even better price, it could avail that opportunity by just paying the termination fees. The first offer could be used as a benchmark for the evaluation of the offers from the other buyers. The overall issue in such kind of a process is the fixation of termination fees, which could be a problem for the target company.

The significant risk in this process from the buyer’s perspective is the window dressing, which is used by the managers of the target company to increase the value of the company. The potential bidders have a limited time to take the deal, which is insufficient to conduct the proper due diligence. This could create significant loss for the potential buyer.

From the seller’s perspective, the risk is the loss of confidential information that is revealed in the market and in the case if the market conditions change, then company can significantly lose its worth.

Question-3: Why are there so many investment bankers involved in this transaction? What are their respective roles?

Investment bankers in this deal played an advisory role in order to identify the requirements of activist shareholders, in developing the strategies for the company, as well as work in the best interest of the directors and executive officers in the acquisition.

From the historical analysis of the declining trend of the company’s performance, the activist shareholders were focusing on either the sale of the company or the wind up some of the departments including the firing of the employees, which were only adding cost to the overall company.

The investment bankers help in getting the correct valuation of Heinz and advise on the future aspects of the company. In addition to this, the investment banker can help in financing the deal. It can be seen that the deal requires $ 28 billion, which could be funded from the help of investment banker. Moreover, insurance could also be provided from these banks to finalize the deal.

Lastly, the bankers can provide guidance on the additional premium paid in this deal, after it is finalized. The investment bankers involved in this deal were from the top ten banks who were engaged in such kind of activities previously as well and had positive results every time.

Question-4: What is the acquisition premium? Do you think the premium is reasonable? Why or why not?

Acquisition premium for the deal

As far as the deal was focusing on the zero synergies, the acquisition premium would be equal to zero because the 3M Company and Berkshire offered the same price as compared to the stock shares price of Heinz. The deal was only fair for expanding the business into different parts of the world. However, no prior decision was made with regards to the region in which acquirers wanted to operate.

Heinz’ main focus was to overcome the losses it incurred in the past. Therefore, it would benefit the company to reduce the risk of business loss. However, the deal was fair to both the shareholders since this acquisition was expected to bring high yields……………

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Share This