U.S. equity markets continue to look for a clear direction as earnings season continues and economic and political leaders get ready for the G20 summit in Saint Petersburg, Russia. Markets are overvalued at current levels with the market trading at a Shiller P/E of 23 compared to its historical mean of 16.5. But don’t count on markets correcting just for the sake of correcting — M&A activity seems to be picking up with the latest buyout coming from none other than Warren Buffett.
This morning it was announced that H.J. Heinz (HNZ) agreed to be acquired by Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) and 3G Capital Management for $28 billion or $72.50 per share. The purchase price represents a 20% premium to Wednesday’s close and has already been unanimously approved by Heinz’s board.
Berkshire Hathaway and 3G will each put up $4.4 billion in equity for the deal, along with debt financing from J.P. Morgan Chase (JPM) and Wells Fargo (WFC). Berkshire is also buying $8 billion of preferred stock that pays 9 percent.
Reports from various media outlets note that 3G approached Buffett in December about a possible deal for the food products manufacturer. From there, Buffett and 3G approached Heinz’s chairman and CEO William (Bill) Johnson about the deal, and the first offer was made in mid-January. While Berkshire will help in the financing of the deal, 3G will handle the operational side as Buffett was quoted during an interview with CNBC, "Heinz will be 3G's baby."
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