market folly

Warren Buffett's Berkshire Hathaway and 3G Capital Management are paying $72.50 a share to buy Heinz (HNZ).  The deal is around a 19% premium to the stocks' all-time high.  Here's the breakdown of the deal:

- Berkshire puts $4.4 billion in equity
- 3G puts $4.4 billion in equity
- Berkshire buys $8 billion of preferred stock
- JPMorgan Chase & Wells Fargo with debt financing

Berkshire Won't Have Operating Role

3G will own half of the equity and will operate the company (Berkshire won't have an operating role).  While the headlines will focus on Berkshire 'buying' Heinz, there should be an asterisk by that because 3G will run the company. 

When Buffett typically buys a company, you have to think along the lines of Burlington Northern Santa Fe Railroad where he buys it all and it gets integrated into Berkshire.  This isn't one of those deals.

The takeaway here is that Buffett is just putting cash to work at very good terms for him.  After all, the preferred shares will yield 9%.  And even after this deal, he still has plenty of cash to do another deal in the future.

Buffett was approached about the deal in December.  Of it, Buffett said, "This is my kind of deal and my kind of partner.  Heinz is our kind of company with fantastic brands.  I have a file on Heinz that goes back to 1980."  That just goes to show how Buffett is always researching and keeping tabs on companies he's potentially interested in.

For more on this investor, head to Charlie Munger and Warren Buffett's secrets to investing success.