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Business 508 Assignment 2

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Assignment #2

Mergers and Acquisitions

Bus 508: Contemporary Business

ABSTRACT
Berkshire Hathaway is “a holding company that specializes in insurance-related companies, but has a wide array of interests, making it a conglomerate (investorwords.com)”. The company is well known due to its owner, investment icon, Warren Buffet. “The second-richest American’s net worth continues to surge, despite his giving away billions, thanks to the juggernaut performance of Berkshire Hathaway (Forbes.com)” His current net-worth is $71.2 billion

Jorge Paulo Lemann, Marcel Telles, and Carlos Alberto Sicupira established 3G Capital in 2004. The firm has offices in New York City and Rio de Janeiro. 3G Capital is a global investment firm focused on long-term value, with a particular emphasis on maximizing the potential of brands and businesses (3GCapital.com). The company is known for large acquisitions such as Anheuser Busch & Burger King.

H.J. Heinz is a 144 year-old Pittsburgh based company. H.J. Heinz Company, offering “Good Food Every Day”™ is one of the world’s leading marketers and producers of healthy, convenient and affordable foods specializing in ketchup, sauces, meals, soups, snacks and infant nutrition. Heinz provides superior quality, taste and nutrition for all eating occasions whether in the home, restaurants, the office or “on-the-go.”(Heinz.com)

Heinz is a global family of leading branded products, including Heinz® Ketchup, sauces, soups, beans, pasta and infant foods (representing over one third of Heinz’s total sales), Ore-Ida® potato products, Weight Watchers® Smart Ones® entrées, T.G.I. Friday’s® snacks, and Plasmon infant nutrition. Heinz is famous for its iconic brands on six continents, showcased by Heinz® Ketchup, The World’s Favorite Ketchup®(Heinz.com)

One of the co-founders of 3G Jorge Lemann reached out to Warren Buffett to speak about partnering and purchasing H.J Heinz. The two companies met with Heinz CEO William Johnson to make a proposal. In 2013, Berkshire Hathaway & 3G Capital created a partnership and purchased H.J. Heinz Company in one of the largest food industry acquisitions. The deal was worth $28 billion dollars.

There are several reasons why the acquisition was made, but two stand out. One reason is that it was great marketing move for Heinz to be acquired is the company does not have the financial status needed to market itself globally. The acquisition will assist with their global industry. Per previous Heinz CEO Johnson, “Heinz will have an opportunity to drive further growth and advance our commitment to providing consumers across the globe with great tasting, nutritious and wholesome products (Heniz.com)”.

A positive effect is Berkshire Hathaway & 3G have companies all over the globe. They can give Heinz the tools and resources needed to expand into other countries. Heinz also did well in acquisition because Berkshire Hathaway & 3G also included the company’s debt in the deal. Heinz can have a fresh debt free start while the expansion takes place.

Shareholders willingly approved the acquisition. The company is no longer a public traded company and was removed from the New York Stock Exchange. Heinz shareholders received $72.50 in cash for each share of common stock they owned as of the effective time of the merger, without interest and less any applicable withholding taxes (Heinz.com).

A negative effect is H.J. Heinz eliminated an estimate of 600 jobs after the acquisition in the U.S. & Canada. The layoffs were a result of being changed from a publicly traded company to private. After the layoffs were complete, Heinz had a reminder of 800 employees in Pittsburgh and 6,000 across North America (CNBC.com).

Once the acquisition was complete, the current CEO William Johnson retired and the new CEO Bernardo Hee started immediately. 3G Capital is known for making organizational changes. Since the acquisition, 11 senior executives have lost their jobs. The executives were given severance packages and left with cash from any stock that the owned. A new senior leadership team was established to replace the current executives.

The new executives were not all associated with 3G Capital & Berkshire Hathaway. Many were new to both companies. The revamp of leadership is something that 3G Capital is known for. Berkshire Hathaway does not run companies once they have purchased them. During a typical Berkshire Hathaway acquisition deal, all executives remain in place.

A new Chief People Officer (Human Resources Director) was hired to direct Heinz’s human resource functions worldwide. Employees in the office now have a “cap” on spending. They are now “limited to printing 200 pages and restricted to color pages for “customer facing purposes”(businessinsider.com). Employees can only spend $15 a month on office supplies and staff can no longer have personal appliances at their desks. They have to use the company-supplied appliances in common areas. Business trip expenses have also been reduced.

The company made several changes after the acquisition that I’m sure has effected employees morale and caused them to question if the company has the their best interest in mind. From reading various articles, the acquisition of H.J. Heinz has not been as smooth of a transition as once thought. Initially, the acquisition went well. Almost a year later, there are still issues that remain with reducing costs to make the global plans work more efficiently. The acquisition overall was a great decision, however, the side effects (loss of jobs, cost cutting, etc.) has caused more headlines than the initial purchase.

References
“Buffet’s recent buy Heinz squeezes out 600 employees”, AP with CCNBC.com (8/14/13). Retrieved from http://www.cnbc.com
“Who is Warren Buffet? (2014)”. Retrieved from http://www.forbes.com
“What is Berkshire Hathaway?” Retrieved from http://www.investorwords.com
“History of Berkshire Hathaway”. Retrieved from http://www.berkshirehathaway.com
“H.J. Heinz Company enters agreement to be acquired by Berkshire Hathaway and 3G Capital (2/14/13). Retrieved from http://www.heniz.com
“H.J. Heinz Company Shareholders overwhelmingly approve acquisition by Berkshire Hathaway and 3G Capital”. Retrieved from http://www/heinz.com
Lopez, Linette, (9/13/13). There have been some pretty harsh changes at Heinz since Warren Buffet brought the company, Retrieved from http://www.businessinsider.com
“H.J. Heinz Company announces new senior leadership team”. Retrieved from http://heinz.com

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