Taking Heinz Private: Managing Value Realization Risk
Journal of Private Equity, pp. 46-56, Fall 2013
Posted: 29 Aug 2013 Last revised: 30 Aug 2013
Date Written: August 29, 2013
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 13th stock price, which was eight times Heinz's book value. These are not the kind of price statistics frequently attributable to a firm headed by one of the world's foremost value investors. To assess this deal’s price we employ the modern Graham and Dodd valuation approach, which is a school of thought that Warren E. Buffett, the Chairman and CEO of Berkshire Hathaway, has long been affiliated with. As we show, this approach can shed significant light on this deal's value, as well as its risks. We then discuss how those risks, specifically with respect to value realization, can be managed via deal terms and conditions, and rigorous post-deal operational management. Given the current interest rate environment and its resulting higher valuations, our findings on joint contractual and operational value realization risk management could prove useful to future private equity acquirers.
Keywords: private equity, acquisition, valuation
JEL Classification: G23, G34
Suggested Citation: Suggested Citation