Taking Heinz Private: Managing Value Realization Risk

Abstract

On February 14, 2013, it was announced that Heinz was being taken private by Berkshire Hathaway and their Brazilian private equity partner, 3G Capital, at a price approximately 20% higher than Heinz’s February 13, 2013, stock price—which was eight times Heinz’s book value. To assess this deal’s price, we employ the modern Graham and Dodd valuation approach, a school of thought with which Warren E. Buffett has long been affiliated. This approach sheds significant light on this deal’s risks and value. How to manage these risks, specifically with respect to value realization, is explored via deal terms and conditions and rigorous post-deal operational management. Given low interest rates and the resulting higher valuations, our findings on joint contractual and operational value realization risk management could prove useful to future private equity acquirers.

TOPICS: Private equity, equity portfolio management, fundamental equity analysis, emerging