Berkshire Hathaway to swallow Heinz

Lash: 'Heinz maintains a broad swath of competitive advantages'

By MATEUSZ PERKOWSKI

Capital Press

A planned takeover of the H.J. Heinz Co. by two investment firms isn't likely to disrupt its supply chain for tomatoes and other crops, experts say.

Berkshire Hathaway, led by legendary investor Warren Buffett, and 3G Capital have made a deal to buy the food company for $28 billion in cash and assumed debt.

Buffett's involvement signals the new owners are unlikely to break apart the company and sell off the pieces, said Michael Sansolo, former senior vice president of the Food Marketing Institute and an industry consultant.

"He doesn't buy them to wreck them. That has never been his track record," Sansolo said. "I've got to believe this is going to be a positive for the company."

Heinz is a famous brand, but the acquisition is also attractive due to the performance of food manufacturers during recent economic turbulence, he said. It's a fairly safe sector for investment.

"There is a stability in the food industry that is not there in so much of the economy," Sansolo said.

While it's unlikely that the new owners would try to "tinker with the quality" for which Heinz is known, the company may trim its product portfolio -- likely affecting some suppliers, he said.

"Not every product Heinz produces performs equally well," Sansolo said. "I'm sure they're going to go in looking for nonperforming assets."

Heinz makes a wide variety of products aside from ketchup, from baked beans to baby food, but it was already focusing on efficiency before the planned merger, said Erin Lash, an industry analyst at the Morningstar investment research firm.

The company enjoys a "pretty decent" operating margin compared to its competitors, she said. "I wouldn't think there would be a major cost-cutting emphasis under the new ownership."

The global diversification of Heinz was attractive to the investment firms -- roughly 60 percent of its sales are outside the U.S. -- as it offers an opportunity to grow aggressively overseas, Lash said.

"Heinz maintains a broad swath of competitive advantages," she said.

Heinz reported profits of $923 million on total sales of about $11.65 billion in its 2012 fiscal year, which ended late last April. Revenues remained steady during the first half of its 2013 fiscal year while profits rose 18 percent.

The company contracts directly with farmers for tomatoes, cucumbers, potatoes, onions and some other fruits and vegetables, according to a financial report. The company also buys dairy products, meat and other agricultural goods from approved suppliers.