“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.
That’s the NYT. I don’t know, this seems to be an odd deal to me. Sure the brands are great but quickly flick through Heinz’ financials and you see a company with a terrible balance sheet: 4.5bn of intangible assets and only 2.8bn of equity. 4bn of debt, about equal to the treasury stock deficit. This is a company that has borrowed heavily to buy back its own stock for some reason. Why add the risk?
Well it’s about to get another pile of financing (3bn more by my math):
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.
Everyone’s getting pumped up for deals deals deals but I’m scratching my head.