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Berkshire and 3G Capital to Buy Heinz for $23 Billion

dealbook.nytimes.com

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Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#11

Post by AlexMuir »

erock wrote: post #10
AlexMuir wrote: post #6

Over the last few months I've been noticing a lot of adverts for Heinz products on the radio. They go like this: "When I was younger dad would take us out for fish and chips. We'd walk along the canal and feed the ducks, even in the rain. Then I'd unwrap the bag, with the steam rising, and squirt on a dollop of ketchup. And, like always, it has to be Heinz." I'm always amazed at the ability of brands to sell £0.20 pr…

living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz

I suppose one interesting thing about brands (or perhaps just Heinz) is that we assume they're local. I would have said Heinz was a British company, no question. Likewise with Kelloggs.

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#12

Post by DanBC »

AlexMuir wrote: post #11
erock wrote: post #10

Earlier quoted context omitted.

living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz

I suppose one interesting thing about brands (or perhaps just Heinz) is that we assume they're local. I would have said Heinz was a British company, no question. Likewise with Kelloggs.

Which has interesting results when the parent company changes a name from Marathon to Snickers.

(I agree about the Britishness of Heinz and Kelloggs. It's only in the past ten years that I realised they weren't.)

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#13

Post by meaty »

AlexMuir wrote: post #6

Over the last few months I've been noticing a lot of adverts for Heinz products on the radio. They go like this: "When I was younger dad would take us out for fish and chips. We'd walk along the canal and feed the ducks, even in the rain. Then I'd unwrap the bag, with the steam rising, and squirt on a dollop of ketchup. And, like always, it has to be Heinz." I'm always amazed at the ability of brands to sell £0.20 pr…

Spot on. Those figures make me shiver. Branding is just not worth it on food when you know about the details.

Small rant: I stopped buying brands years ago, avoid supermarkets like the plague and don't buy ready meals. Instead I purchase from wholesalers in bulk and grow a few expensive things (chillis, peppers, tomatoes, herbs etc). Granted I have to buy beans in 2kg tins and pasta by the 5kg bag from the wholesaler but my food bill for 2 adults and 3 children is around £200/month and we eat proper freshly cooked meals every day.

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#14

Post by jcampbell1 »

ww520 wrote: post #7
geraldchan wrote: post #5

The fundamentals of this transaction will be outside the scope of understanding of the HN crowd.

What are the fundamentals of this transaction?

Heinz is a 100 year brand and generates about $1.3B a year in after tax cash.

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#16

Post by erock »

AlexMuir wrote: post #11
erock wrote: post #10

Earlier quoted context omitted.

living in the town where Heinz was founded (Pittsburgh, PA) brand loyalty can get a little over the top, we look down on anyplace that doesn't have Heinz ketchup, and years ago when I live in the bay area, I chastised a restaurant because i knew (I just knew!) they watered down the ketchup. Come on, I'm from Pittsburgh, I know my Heinz

I suppose one interesting thing about brands (or perhaps just Heinz) is that we assume they're local. I would have said Heinz was a British company, no question. Likewise with Kelloggs.

well, we can't get spotted dick here (really we can if you look hard enough(also, i only take pictures of the can to send to friends)), but heinz was founded in Pittsburgh.

https://en.wikipedia.org/wiki/H._J._Heinz_Company

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#17

Post by WillyF »

I've heard stories that Heinz is so defensive of their brand that they send out "Ketchup Inspectors" to make sure restaurants aren't refilling Heinz bottles with lesser ketchup. This is the only somewhat legitimate source that I could find: http://www.freerepublic.com/focus/f-news/1067133/posts

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#18

Post by Retric »

jcampbell1 wrote: post #14
ww520 wrote: post #7

Earlier quoted context omitted.

What are the fundamentals of this transaction?

Heinz is a 100 year brand and generates about $1.3B a year in after tax cash.

1.3 / 23 is less than 6 percent ROI, and buffet thinks this is a good investment. Granted, they may think the business can be streamlined, but I still think this says a lot about the capital glut that's driving down returns.

Ps: Most of this deal is financed with debt, so there buying 6% ROI with debt.

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#19

Post by nirvana »

AlexMuir wrote: post #6

Over the last few months I've been noticing a lot of adverts for Heinz products on the radio. They go like this: "When I was younger dad would take us out for fish and chips. We'd walk along the canal and feed the ducks, even in the rain. Then I'd unwrap the bag, with the steam rising, and squirt on a dollop of ketchup. And, like always, it has to be Heinz." I'm always amazed at the ability of brands to sell £0.20 pr…

You're looking at the cost of production, and then the price and assuming that all of the space between the two is profit, and seem to be implying that somehow it is a ripoff.

What you're not considering is the value to the customer.

The incremental cost of a copy of Microsoft Office (with electronic delivery they cut out virtually all of their manufacturing cost) is close to zero. Probably 12p as well.

Yet Microsoft sells that Office Suite for $99 or much much more.

If the value of one copy of that office suite to a company is $10,000 in improved efficiency (eg: salaries saved by not having to pay overtime or hire as many people-- remember when spreadsheets were physical sheets of paper and companies had staffs of dozens of women whose sole job was to type up correspondence on typewriters?) then they are "profiting" even more than Microsoft is because the spread is wider.

Further, manufacturing costs are only one part of the costs of a product. Yes there's marketing, and advertising which you may hate, but there's also the offices that house the workers that run the company, the royalties paid to people who generate formulations, the taxes paid to the government, the manifold fees, costs, and expenses involved in running a business. All of these raise the actual "cost" from above the 12p manufacturing (and delivery costs I assume you included.)

For me, the value of buying a brand that has reliable quality control is often pretty high.

If a high quality bottle of ketchup elevates the satisfaction of an inexpensive meal (say fish & chips) to the point where it is on par with a much more expensive meal, like those workers using office, I may be getting more "profit" out of the transaction than the company.

This is how I use ketchup. It means I eat out less, and spend less on food and have a higher quality of life.

Re: Berkshire and 3G Capital to Buy Heinz for $23 Billion

#20

Post by erock »

WillyF wrote: post #17

I've heard stories that Heinz is so defensive of their brand that they send out "Ketchup Inspectors" to make sure restaurants aren't refilling Heinz bottles with lesser ketchup. This is the only somewhat legitimate source that I could find: http://www.freerepublic.com/focus/f-news/1067133/posts

Sometimes people do it themselves https://news.ycombinator.com/item?id=5219485
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