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DealBook: Buffett in $23 Billion Deal for Heinz, as Big Mergers Revive

February 14, 2013 by Leave a Comment

Heinz will be sold to Berkshire Hathaway, the conglomerate controlled by Warren E. Buffett.Don Ryan/Associated PressHeinz will be sold to Berkshire Hathaway, the conglomerate controlled by Warren E. Buffett.

10:12 a.m. | Updated

Warren E. Buffett has found another American icon worth buying: H. J. Heinz.

Berkshire Hathaway, the giant conglomerate that Mr. Buffett runs, said on Thursday that it would buy the food giant for about $23 billion, adding Heinz ketchup to its stable of prominent brands.

The proposed acquisition, coming fast on the heels of a planned $24 billion buyout of the computer maker Dell and a number of smaller deals, heralds a possible reemergence in merger activity.  The number of deals and the prices being paid for companies are still a far cry from the lofty heights of the boom before the financial crisis.  But an improving stock market, growing confidence among business executives and mounting piles of cash held by corporations and private equity funds all favor a return to deal-making. 

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Mr. Buffett is teaming up with 3G Capital Management, a Brazilian-backed investment firm that owns a majority stake in a company whose business is complementary to Heinz’s: Burger King.

Under the terms of the deal, Berkshire and 3G will pay $72.50 a share, about 20 percent above Heinz’s closing price on Wednesday. Including debt, the transaction is valued at $28 billion.

“This is my kind of deal and my kind of partner,” Mr. Buffett told CNBC on Thursday. “Heinz is our kind of company with fantastic brands.”

In many ways, Heinz fits Mr. Buffett’s deal criteria almost to a T. It has broad brand recognition – besides ketchup, it owns Ore-Ida and Lea Perrins Worcestershire sauce – and has performed well. Over the last 12 months, its stock has risen nearly 17 percent.

Mr. Buffett told CNBC that he had a file on Heinz dating back to 1980. But the genesis of Thursday’s deal actually lies with 3G, an investment firm backed by several wealthy Brazilian families, according to a person with direct knowledge of the matter.

One of the firm’s principal backers, Jorge Paulo Lemann, brought the idea of buying Heinz to Berkshire about two months ago, this person said. Mr. Buffett agreed, and the two sides approached Heinz’s chief executive, William R. Johnson, about buying the company.

“We look forward to partnering with Berkshire Hathaway and 3G Capital, both greatly respected investors, in what will be an exciting new chapter in the history of Heinz,” Mr. Johnson said in a statement.

Berkshire and 3G will each contribute about $4 billion in cash to pay for the deal, with Berkshire also paying $8 billion for preferred shares. The rest of the cost will be covered by debt financing raised by JPMorgan Chase and Wells Fargo.

Mr. Buffett told CNBC that 3G would be the primary supervisor of Heinz’s operations, saying, “Heinz will be 3G’s baby.”

The food company’s headquarters will remain in Pittsburgh, Heinz’s home for over 120 years.

Heinz’s stock was up nearly 20 percent in morning trading, at $72.51, closely mirroring the offered price. Berkshire’s class A stock was also up slightly, rising 0.64 percent to $148,691 a share.

Heinz was advised by Centerview Partners, Bank of America Merrill Lynch and the law firm Davis Polk Wardwell. A transaction committee of the company’s board was advised by Moelis Company and Wachtell, Lipton, Rosen Katz.

Berkshire’s and 3G’s lead adviser was Lazard, with JPMorgan and Wells Fargo providing additional advice. Kirkland Ellis provided legal advice to 3G, while Berkshire relied on its usual law firm, Munger, Tolles Olson.

Article source: http://dealbook.nytimes.com/2013/02/14/berkshire-and-3g-capital-to-buy-heinz-for-23-billion/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

China Looks to Aerospace Industry in a Bid for Growth

January 21, 2013 by Leave a Comment

 

TIANJIN, China — When Airbus executives arrived here seven years ago scouting for a location to assemble passenger jets, the broad, flat expanse next to Tianjin Binhai International Airport was a grassy field.

Now, Airbus, the European aerospace giant, has 20 large buildings and is churning out four A320 jetliners a month for mostly Chinese state-controlled carriers. The company also has two new neighbors — a sprawling rocket factory and a helicopter manufacturing complex — both producing for the Chinese military.

The rapid expansion of civilian and military aerospace manufacturing in Tianjin reflects China’s broader ambitions.

As Beijing’s leaders try to find new ways to invest $3 trillion of foreign reserves, the country has been aggressively expanding in industries with strong economic potential. The Chinese government and state-owned companies have already made a major push into financial services and natural resources, acquiring stakes in Morgan Stanley and Blackstone and buying oil and gas fields around the world.

Aerospace represents the latest frontier for China, which is eyeing parts manufacturers, materials producers, leasing businesses, cargo airlines and airport operators. The country now rivals the United States as a market for civilian airliners, which China hopes to start supplying from domestic production. And the new leadership named at the Party Congress in November has publicly emphasized long-range missiles and other aerospace programs in its push for military modernization.

If Boeing’s difficulties with its recently grounded aircraft, the Dreamliner, weigh on the industry, it could create opportunity. Chinese companies, which have plenty of capital, have been welcomed by some American companies as a way to create jobs. Wall Street has been eager, too, at a time when other merger activity has been weak.

Washington is trying to figure out what to do about China’s deal-making broadly. “Many of these transactions raise important security issues for our country,” said Michael R. Wessel, a member of the U.S.-China Economic and Security Review Commission, which was created by Congress to monitor the bilateral relationship. “China’s interest in promoting these investments isn’t necessarily consistent with our own interests, and it’s appropriate to thoroughly examine the transactions.”

In aerospace, the Chinese deal-makers have deep ties to the military, raising additional issues for American regulators. The main contractor for the country’s air force, the state-owned China Aviation Industry Corporation, known as Avic, has set up a private equity fund to purchase companies with so-called dual-use technology that has civilian and military applications, with the goal of investing up to $3 billion. In 2010, Avic acquired the overseas licensing rights for small aircraft made by Epic Aircraft of Bend, Ore., using lightweight yet strong carbon-fiber composites — the same material used for high-performance fighter jets.

Provincial and local government agencies in Shaanxi province, a hub of Chinese military aircraft testing and production, have set up another, similar-sized fund for acquisitions. Last month, a consortium of Chinese investors, including the Shaanxi fund, struck a $4.23 billion deal with the American International Group to buy 80 percent of the International Lease Finance Corporation, which owns the world’s second-largest passenger jet fleet.

“There has always been an obvious cross-fertilization of ideas, expertise and money between the civilian and military,” said Martin Craigs, a longtime aerospace executive in Asia who is now the chairman of the Aerospace Forum Asia, a nonprofit group in Hong Kong. He added that Chinese companies had been actively hiring senior American and European aerospace engineers, so national security concerns could be circumvented by hiring the right people.

The push into aerospace coincides with growing worries in the West and across Asia about China’s increasingly assertive territorial claims, including the dispatch of Chinese warships to waters long patrolled by Japan, the Philippines and Vietnam.

Coincidentally, hours after the A.I.G. deal was announced, two Chinese navy destroyers and two frigates showed up in disputed waters patrolled by Japan. China and Japan have stepped up public criticisms of each other since. And the Obama administration has begun a strategic “pivot,” shifting military forces from the Mideast back to the western Pacific, a move that Chinese officials have criticized as an attempt to contain their country.

Such confrontations in the region are drawing attention to China’s deal-making ambitions.

In October, a $1.79 billion bid by a business linked to Beijing’s municipal government to acquire the corporate jet and propeller plane operations of bankrupt Hawker Beechcraft in Wichita, Kan., fell apart over national security concerns in Washington. Executives found it hard to disentangle the civilian operations from the company’s military contracting business.

Article source: http://www.nytimes.com/2013/01/22/business/global/china-looks-to-aerospace-industry-in-a-bid-for-growth.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: An M.&A. Jedi Returns to Morgan Stanley

January 20, 2012 by Leave a Comment

Last fall, Charles Cory moved to Menlo Park, Calif., to help run Morgan Stanley’s technology banking practice, where he has led a flurry of deals.Peter DaSilva for The New York TimesLast fall, Charles Cory moved to Menlo Park, Calif., to help run Morgan Stanley’s technology banking practice, where he has led a flurry of deals.

Charles Cory, a longtime Morgan Stanley deal maker, spent the financial crisis cloistered in academia, working as a law professor at the University of Virginia.

But Wall Street came calling last year. With merger activity picking up, Paul J. Taubman, the co-president of Morgan Stanley’s securities business, spoke to Mr. Cory to persuade him to come back full time, even sending e-mails during Mr. Cory’s family vacation to Tuscany.

“Taubman said, ‘This assignment will be good for you, and it will be good for Morgan Stanley,’” said Mr. Cory.

In September, he moved back to Menlo Park, Calif., to help run the firm’s technology banking practice. Since then, he has led a flurry of deals. In October, he represented RightNow Technologies in its sale to Oracle for $1.5 billion. He advised SuccessFactors, which was bought for $3.4 billion by SAP in a rich deal valued at roughly 10 times projected sales.

“As activity heats up, we wanted to have the most effective, senior tech bankers in the Valley,” said Mr. Taubman, who has known Mr. Cory for decades.

As Mr. Cory sees it, the industry is at the start of another bull market for mergers and acquisitions. Last year, deal volume in the sector jumped more than 26.9 percent, to $190.6 billion, according to Thomson Reuters.

He has historical perspective. In his 30 years with Morgan Stanley, he has handled more than 300 deals, including the breakup of ATT in 1984.

“There are tectonic shifts going on, and the older companies need to figure out how to play,” said Mr. Cory, 56.

Mr. Cory, who restores historic homes in his spare time, has a knack for rebuilding.

In 1996, after the abrupt departure of the star banker Frank Quattrone, Morgan Stanley tapped him to shore up its Menlo Park office. He had to start from scratch; Mr. Quattrone gutted the staff on his way to a smaller rival, Deutsche Morgan Grenfell. He asked three Manhattan-based bankers to relocate and then helped fill out the rest of the team.

The first year post-Quattrone was brutal, with the firm’s share of the tech mergers-and-acquisitions market plunging from 62 percent for the previous year to 16 percent, according to data provided by Morgan Stanley. But by 1998, the firm had largely bounced back, accounting for nearly half of the market activity.

While deal-making was derailed by the dot-com bust that soon followed, a wave of consolidation began sweeping the enterprise software industry in 2003. PeopleSoft announced its $1.7 billion acquisition of rival J.D. Edwards.

The J.D. Edwards deal, advised by Morgan Stanley, led Oracle to submit a hostile bid for PeopleSoft just days later. In the ensuing years, Mr. Cory’s team went on to advise several multibillion-dollar transactions, representing Oracle when it bought Siebel Systems in 2005 and Hyperion when it was sold to Oracle in 2007.

Charles Cory of Morgan Stanley in 1998.The New York TimesCharles Cory of Morgan Stanley in 1998.

But after many years with the firm, Mr. Cory decided to take a sabbatical, just as the financial crisis was unfolding. He returned to his alma mater, the University of Virginia School of Law, to teach a course on acquisitions and another called “A (Necessarily) Brief Introduction to the Capital Markets.” Still, he remained a banker-on-call, occasionally tapped to pinch-hit on deals and call old clients.

Now, the elder statesman is officially back — a homecoming his colleagues have affectionately called “the return of the Jedi.” As the chairman of global tech banking, he is mainly focused on client relationships. He leaves the day-to-day operations to the co-heads of the group, Michael Grimes and Paul Chamberlain.

He is spending more time on the enterprise market. Many upstarts that went public from 2006 to 2008 are now contemplating whether they should merge with larger companies. At the same time, potential suitors — enterprise giants flush with cash — are seeking technologies to adjust to new trends, like the rise of Web-based, or cloud-computing, services.

Traditionally, the enterprise market has been dominated by installed software, which typically involves big upfront fees and recurring maintenance needs. Now, more businesses are migrating to cloud services that are easy to scale and allow clients to pay based on usage.

“Everyone is motivated to do a deal,” said Pat Walravens, an analyst at JMP Securities. “The sellers are motivated because despite the fact that they are gaining market share, they are under tremendous margin pressure to build out their sales force.”

Oracle, a company that once scoffed at its cloud-based competitors, has ramped up efforts to expand its footprint in the area. Its acquisition of RightNow in October pressured SAP to close a large transaction in that field, which set up its acquisition for SuccessFactors two months later.

“SAP is the biggest player in on-premise software, and even they decided they needed to get a better platform for the cloud,” Mr. Cory said.

As always, competition remains fierce. In telecommunications, media and technology deals, Morgan Stanley had the highest total in fees last year, at $357.6 million, according Thompson Reuters. But Goldman advised the most transactions, with a deal volume of $106 billion.

There’s also the risk that Morgan Stanley could falter if one of its top bankers flees. Mr. Grimes — who has been with the firm since 1995 and led the I.P.O.’s of Zynga, LinkedIn and Groupon — is considered to be a star in his own right.

Mr. Cory is confident in the firm’s prospects. The banker, a Facebook and Xbox user, says the business still comes down to textbook basics: relationships and sector knowledge.

In September, the chief of SuccessFactors, Lars Dalgaard, called Morgan Stanley, the firm that helped his company go public in 2007.

Less than an hour later, the bankers pulled up to the lobby of a Sheraton hotel near San Francisco. Unknown to them, Mr. Dalgaard was waiting upstairs, with a bid from SAP.

After reviewing the offer, the team — led by Mr. Cory and a top deputy, Owen O’Keeffe — discussed the assets of SuccessFactors, the merits of the deal and comparable transactions.

“They are skillful presenters — maybe a little McKinsey. They can show you what a company needs to do in a couple of slides,” Mr. Dalgaard said in a recent interview, referring to the giant consulting firm. “Chuck and Owen made it easy.”

Article source: http://feeds.nytimes.com/click.phdo?i=fd969ac61a266d69bc014df1db8f502c

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