Análise da Aquisição da HJ Heinz: Riscos, Vantagens e Reações do Mercado

1 HJ Heinz MA Case Solution The potential risk would be imposed to the shareholders as they might not be involved in the auction process in order to give alternative proposals In other words the level of transparency would reduce to show true picture for the shareholders Therefore according to the companys perspective it had some advantages as well as disadvantages through the shareholders mindset Role of investment bankers On the other hand all the companies associated with the acquisition had some investment advisors for the future consideration of the deal The main purpose of involving the investment bankers was to secure the finance against contingencies as they would be subject to provide financing during the need to recapitalize the structure and to expand the business by borrowing the debt The role of these bankers was to provide the information about the decision of acquisition which might increase or decrease the level of market value Therefore every companys advisor analysed different results in order to know the true value of the company after the process of acquisition An all cash deal for acquisition According to the current situation there were some advantages as well as disadvantages with the use of an all cash deal of acquisition If the company would pay all the cash excluding the common stock for acquiring Heinz then there could be a possibility to reduce the level of reserve and the liquidation process because the company would use all the cash to acquire However the advantage was to retain the shares and to increase the level of Heinzs shares in order to provide large dividends to its shareholders If the company would be subject to liquidation during the process then 3M Company and Berkshire would liquidate their assets in order to recover the loss thus it would decrease the level of operations and to damage the overall process Market reaction for the acquisition announcement After the announcement of acquisition for Heinz the market reaction in Pittsburgh was negatively affected by the citizens as they were quite nervous about the possibility of relocation of business into other parts of the world The reaction from the shareholders was quite favourable to the company because they knew the current position of Heinz and a potential benefit after the acquisition but not satisfied about the go shop strategy implemented by the company The competitors within the industry were quite nervous about the potential threat imposed through the competitive advantage after the acquisition with 3M Company and Berkshire They were eager to disagree the process in order to make themselves in a strong position Nevertheless the deal was quite acceptable for the company as well as its shareholders as it would benefit the entire operations through recapitalize and increase the stock price level in order to provide additional benefits to its shareholders Financial acquirers as prospective buyers The total deal shows that there was a less amount of debt involved during the acquisition therefore any financial institution would avail the opportunity to lend the debt amount for expansion of operations This would allow to acquire the majority of shares within the company and could consider to take decision about the future benefits In this case both acquirers of Heinz had investment bankers who advised to either merge or reject the deal Therefore the bankers might have the opportunity to show interest in order to purchase the majority of stocks through lending the amount of money into the operations This would allow to increase the level of liquidation within Heinz and to reduce the risk occurred in the goshop process and to retain the shareholders benefits for the future dividends by reducing the level of tax obligations in order to increase the profitability ratio This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf 2 Reasons for 3G to jointly propose Heinz Details Heinzs turnaround that was begun by Peltz had been fruitful and there was noteworthy potential for progressing with worldwide development 3G educated CEO Johnson that it and Berkshire Hathaway were occupied with together securing Heinz Johnson then introduced the speculators offer of 70 every offer of remarkable regular stock to the Heinz board At a meeting on January 15 2013 the board delegated an exchange council and voted to hold Center view and Bank of America Merrill Lynch as consultants Heinzs board and consultants examined the patterns that were adversely affecting Heinz including low worldwide GDP development They also talked about different options for a deal including remaining a standalone organization or seeking after obtaining by another organization in the nourishment and drink industry In the wake of overhauling its key arrangement and budgetary projections Heinz educated 3G that without better monetary terms it would not keep on talking about the likelihood of a securing After two days 3G and Berkshire Hathaway came back with a changed proposition of 7250 every offer for an aggregate exchange estimation of 28 Billion counting Heinzs extraordinary obligation A week after the new proposition Heinz consented to keep talking about the obtaining Company Information The HJ Heinz was established in 1869 by its founder Henry J Heinz The company began selling horseradish in Sharpsburg Its product range increased to 60 items by 1896 including ketchup and the company adopted the slogan of 57 Varieties Heinz also began to sell ready to cook meals like beans soups pickles etc The company listed itself on New York stock exchange in 1946 and after which it began to acquire other companies by the time of 1978 In December 2012 Jorge Paulo Lemann cofounder and partner at investment firm 3G Capital proposed to Warren Buffet that 3G and Berkshire Hathaway acquire HJ Heinz Company After negotiating the purchase price Heinz agreed to continue discussing the acquisition Although the food industry was mature 3G and Berkshire Hathaway saw opportunities for Heinz both in expanding into emerging markets and realizing operational efficiencies in production Investment bankers representing both sides agreed that the acquisition was valued fairly The company is generating around 116 billion global revenue while its products are being manufactured in 6 different continents and are marketed over more than two hundred countries On annual basis about 600 million ketchup bottles are sold in more than 140 countries which combine to the sale of around 15 billion Financial Analysis HJ Heinz Company Case Solution Answer Analyzing the companys financial statements will present the view of financial capabilities of Heinz which will further assist in evaluation of the acquisition decisions For this purpose the financial statement of the company for the year ending 2012 are taken into consideration Firstly the consolidated statement of income for the year ended 2012 in comparison with that of year 2011 and 2013 The net profits show that the companys performance reduced in 2012 as compared to 2011in terms of its profit generation Although the sales of the company show growing trend with the passage of time but the increase in expense of the company had superseded the revenue due to which the companys profitability reduced This is mainly due to increase in selling and admin expenses of the company in 2012 However later on in 2013 the companys profits revitalized to their original position in fact increased in comparison to that of 2011 Moreover when considering the gross margins of the company the financial statements show that there has been reduction in the gross margins of the company too in 2012 as compared to that of 2011 But in the later year that is 2013 the companys gross margins increased to 3593 again Although the gross margins in 2012 decreased but the company is still able to cover its expenses and make healthy profits for its shareholders This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf 3 H J Heinz MA Case Solution Investors The investors might face dilution of control as the acquisition will bring up new investors However this will be compensated with the increment in the size of the organization Creditors The creditors of the company will be affected in a positive way as the new company will be large and will have better liquidity and solvency abilities They will be more willing to give funding to the company Core valuation techniques to support MA valuation The valuation for the merger and acquisition can be made by the FCF and NPV valuation This will give the view about the companys future cash generating ability This will ensure whether the company has potential to justify the price that is paid as consideration Another method is the use of comparable and multiples This will result in making the valuation based on the practical results from the historical mergers and acquisitions made that have similar attributes as this acquisition Influence of investment bankers on MA transactions The investment bankers have major roles in the MA Transactions They provide the valuation of the potential company and the fair values that reflects the value of the acquiring company to help the acquirer company in the process The investment bankers also provide investment options and help in issuing securities in public to raise the funds Each of the buyer or seller can use the investment bankers to negotiate the deal at their respective terms The role of activist investors in corporate strategic decisionmaking The activist investor is the one who buys the significant amount of share of the company to have a say in the boards decision making He gets the power because of its voting rights in the decision making of the company He significantly influences the corporate strategic decision and might influence on the decisions that is designed for personal gain ignoring the other stakeholders Evaluation of Go Shop Period In this transaction Interbank or intermediary like investors could play an important role between the HJ Heinz and acquirer In addition to this Go Shop agreement could impart certain restrictions on both acquirer and target company in terms of first bidding matching rights Valuation Analysis Valuation through DCF It is expected that in order to identify the total worth of the company and in order to evaluate the proposed bid that either it is suitable or not valuation of the company is performed For this purpose DCF model and Multiples methods are followed In order to value the company under DCF model certain assumptions have been made regarding EBIT depreciation working capital changes and capital expenditure It is expected that revenue will grow by 13 and EBITDA will be 176 of revenue and it will remain constant in projected years By incorporating working capital changes and capital expenditure free cash flows are identified In order to incorporate the future benefits terminal value is also identified by assuming 2 terminal growth By incorporating all these values net present value of the company is identified and for this purpose 65 discount factor is used which generates 33912 net present value This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf 4 What was the reason for an all cash deal and what is the disadvantage of this form of consideration as opposed to using common stock as consideration What are the risks and benefits of this transaction for 3G and Berkshire Hathaway On 15 Jan 2013 3G and Berkshire Hathaway jointly decided to acquire Heinz As Heinz was successful and there was potential growth 3G and Berkshire Hathaway offer 70 per share of outstanding common stock to Heinz The companies appointed Bank of America so that company could be sold at its fair value The investment banks advice to the company was that there will be the negative impact on Heinz as the international GDP is going down Along with that the bank also advised that Heinz is a standalone company in food and beverage industry After the acquisition the company sales will increase so that 3G and Berkshire Hathaway decided to offer 725 per share of outstanding common stock to Heinz for the total valuation of 28 billion In the go shop period Heinz was looking for the best purchase price investor and investor get a new proposal from Moelies and company The board also provides its approval of the acquisition after receiving fairness opinion from the bank The risk and benefits for 3G and Berkshire Hathaway are there company was not able to increase their earning It was expected that by improving the technology and invest in the RD program the company will reduce their cost and improve the revenue Along with that Heinz was entering in emerging market the competition in reir imposed a threat to Heinz market share Data DEBT 10061 EQUITY 2849 TOTAL 12909 beta 0651 Rf 18 MRP 60 ke 005706 Tax 35 Kd 4 WACC 329 lower boundary upper boundary This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf PBOOK 4172535965 7378168012 PSALE 1646169 1993587 PEG 188 3322 PE 1644679272 174089727 EBITDA 2126889381 2367666879 FCF 1432882472 235267386 Heinz has strong sustainable growth potential based on highquality standard continuous innovation excellent management and great product testing Heinz maintains its status as the major competitor in the food and beverages industry From 2011 to 2012 company increased liquidity by a wide margin thus allowing the company to pay off its current debts In 2012 there was a slight decrease in the gross margin but the company was still able to cover expenses and make healthy profit Should financial acquirers as opposed to strategic acquirers be considered as prospective buyers Heinz is a fantastic brand of ketchup in 2010 Heinz entered in the Chinese market because it has the largest market in the world and was the fastest growing economy In 2011 Heinz purchased Quero Label Market it was the fifthlargest market in the world After purchase Quero Heinz became the market leader in the tomatobased product in Brazil While the partnership with the 3G it opened doors in Brazil and gave Heinz the opportunity to sell their products internationally Heinz has strong brand equities and loyal customers Along with that companys financial position was also good sales of the company were continuously increasing These are the reason most of the buyers wanted to acquire Heinz Do you agree that the acquirers offer was fair from a financial perspective It was the fair value from the financial perspective as the company debt ratio was higher than the equity ratio This means that the company has more financial leverage As years passed the company was increasing their debt in order to invest more in technology and attract more customers This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf 5 H J Heinz M A Case Solution The shareholders of Heinz aim to increase the value of company by generating high profitability as they are the owners of the company and their stake totally depending on profitability as the companys performance was decreasing and Heinz decided for major restructuring by selling the company The mergers and acquisition required the approval of all shareholders as they have voting power and Heinz announced for the approval of merger if they do not approve then the company would face the risk of reversing the termination fees of 14 billion This deal is viable for the shareholders as it will help to enhance each shareholders wealth Management is very important for every company as it take care of day to day operations At the time of merger and acquisitions others were accepting this integration as an economic growth by optimizing the economies of scale but the management would perceived by pressurizing to terminate as the non productive management in order to expand the growth of business After acquisition company should not change its management as they were involved in restructuring of business and have expertise and skills to make it post merger successful business Employees on the other hand did not posses any right for decision regarding the acquisition During restructuring the company terminated 2700 unproductive employees and after integration the company would not terminate old employees in exchange of fresh employees as the current have ability expertise and experience to run the operations Also the company would face difficulty in running the operations as well as the company should hire the terminated employees by providing them incentive The citizens of Pittsburgh are external stakeholders that are main reason for the companys production and services that affects the economy when demand by the citizens change After integration the citizens demanded to serve the operations in existing location and not expanding it globally which then should be approved by the company 1 Discuss the goshop process explain why it may be necessary and list any potential risks of such a process A goshop is the process that allows targeting the selected group of buyers to receive different biddings from potential buyers of the company for a certain time period usually less than two months after the contract is signed with other initial buyer This right of potential buyers includes sharing the confidential information about the target company and if the offer is better than initial buyer would terminate the merger agreement from the initial buyer and would be charge for some break fee or termination fees from the target company The goshop process has many benefits as it attracts various bids from potential buyers and if it bids higher than initial buyer then the company can go for higher bid as it increases the chances of higher impressive bids and selection of competitive deals that reflect the value of Target Company Potential risk associated with goshop process due to uncertain events might take place The loss of initial buyer as the deal is already signed because of others bid is too low Sharing of confidential information to attract the competitive bid Risk of leaking confidential information More cost required to set the bidding process Time consuming goshop process Increase in management would cost more The investment bankers play an intermediary role that provides the advice and information regarding the transactions as they have the bulk of market information and utilize by showing the impact of premerger and postmerger and they charge some amount of fees in exchange of sharing information This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf 6 H J Heinz M A Case Solution The mergers and acquisition required the approval of all shareholders as they have voting power and Heinz announced the approval of merger if they had not approved then the company would have faced the risk of reversing the termination fees of 14 billion This deal is viable for the shareholders as it will help to enhance each shareholders wealth Management is very important for every company as it takes care of daytoday operations At the time of merger and acquisitions others were accepting this integration as an economic growth opportunity by optimizing economies of scale However the management would be pressurized to terminate nonproductive department in order to expand the growth of business After acquisition company should not change its management as they were involved in restructuring of business and have expertise and skills to make it a successful business post merger Employees on the other hand did not posses any right to make a decision regarding the acquisition During restructuring the company terminated 2700 unproductive employees and after integration the company would not terminate old employees in exchange of fresh employees as the current have ability expertise and experience to run operations In addition the company would face difficulty in running the operations as well as the company should hire the terminated employees by providing them incentive The citizens of Pittsburgh are external stakeholders that are main reason for the companys production and services that affects the economy when demand by citizens change After integration the citizens demanded that the operations should stay in the preexisting location and did not want global expansion for the company However the company approved the plans for expansion late Goshop is the process that allows target to select a group of buyers to receive different bids from potential buyers of the company for a certain time period usually less than two months after the contract is signed with initial buyer This right of potential buyers includes sharing confidential information about the target company and if the offer is better than initial buyer then it would terminate the merger agreement from the initial buyer and the target company would be charged with some break fee or termination fees from initial buyer The goshop process has many benefits as it attracts various bids from potential buyers and if it bids higher than initial buyer then the company can go for higher bid as it increases the chances of higher impressive bids and selection of competitive deals that reflect the value of Target Company Potential risk associated with goshop process due to uncertain events might take place The loss of initial buyer as the deal is already signed because of others bid is too low Sharing of confidential information to attract the competitive bid Risk of leaking confidential information More cost required to set the bidding process Time consuming goshop process Increase in management would cost more 2 Why investment bankers involved in this transaction and what are are their respective roles The investment bankers play an intermediary role provide advice and information regarding transactions they have the bulk of market information and utilize it by showing the impact of pre merger and postmerger scenarios They charge some amount of fees in exchange of sharing information For 3G and Berkshire Hathaway the investment banks are JP Morgan Lazard and Wells Fargo that provides external market information and suggestion to carry out the effective integration and try to complete the deal If the company has not enough cash then the banks can provide financing through debt to complete the transactions This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf HJ Heinz MA Case Solution Discuss the goshop process explain why it may be necessary and list any potential risks of such a process The goshop process is a process in which there is a time period granted to the company with the mutual agreement of the initial buyer In this timer period the company got rights to other potential buyer in the market The company also got the right to terminate such deal with the initial buyer if it finds a more feasible deal in the market The company identified such buyer and discussed the acquisition deal with them Confidential internal information was also exchanged among the company and the potential buyer but under a confidentiality agreement During this time the company searches for a better deal than the initial buyer The goshop process is necessary to evaluate the fairness and competitiveness of the deal The company receives a time period to think and to assess whether the deal is competent and whether more a favorable deal can be obtained from the market Some Potential Risks are In this goshop process the company incurs cost to seek other opportunities and find other potential buyer Thus it incurs more cost to the company The management of the company got into this process and this is at the cost of the other core operating activities The initial buyer might get frustrated although giving consent to the goshop agreement and this might results in uncooperative behavior from the buyer The goshop process involves furnishing of confidential information to many potential buyers therefore it implies damage to the company if such information leaks out The investment bankers for 3G and Berkshire Hathaway were JP Morgan Lazard and Wells Fargo For Heinz investment bankers include Bank of America Merrill Lynch Centerview and Moelis Co Investment bankers are involved in the deal to assist companies in reaching a collective bargaining position and complete the transaction The acquirers investment banker advice the company on the deal it helps in identifying and analysing the transaction price Investment banker has specialized skills in these types of deals They have great market knowledge and can provide competent services to its clients Investment banks are committed to provide advice on the transaction and also to consider the fairness of the deal For the target company its investment banker help assistance in determining the value of the company and assisting to estimate what offer is beneficial and what should be included or excluded from the deal structure Here the investment bankers assume the same position and make sure that the transaction is in line with the companys objectives and the deal is fair for both parties as well as for all stakeholders What was the reason for an all cash deal and what is the disadvantage of this form of consideration as opposed to using common stock as consideration What are the risks and benefits of this transaction for 3G and Berkshire Hathaway The deal was a cash deal where the acquirer is paying the whole consideration price in cash The acquirer was actually buying shares and paying the price in cash It doesnt want to have any existing shareholder and wants to secure all voting stake of the company The acquirer wants to run the company in their own capacity using its management and entrepreneurial skills The buyer doesnt want any dilution of control in the acquired company This study source was downloaded by 100000846522146 from CourseHerocom on 05192022 073923 GMT 0500 httpswwwcourseherocomfile51818450Heinzsolpdf Powered by TCPDF wwwtcpdforg