Michael Dell's post-crisis record for a proposed takeover didn't last long, Warren Buffett is out today with a $28 billion offer for Heinz. The deal, which is being undertaken in coordination with 3G Capital (who would be put in charge of management) and the assistance of several banks caps a growing wave of merger and takeover activity.
It's a classic Buffett deal—basically banal company with a strong brand identity and products that people like. Heinz Ketchup is the best ketchup in the world and everyone knows it. According to Malcolm Gladwell, science proves that it is impossible to improve on its flavor. I'm not saying I use a ton of Lea & Perrins Worcestershire Sauce but it's certainly the case that when I use worcestershire sauce I use Lea & Perrins. Can I even name a brand of frozen potatoes besides Ore-Ida? Not everything in their portfolio quite reaches that standard of obviousness, but this is the basic soul of the company. Stuff you don't even think about much. I'd note that it's not a cheap acquisition. Buffett is paying a premium for a company that already had a healthy PE ratio. But the flipside is this isn't some takeover of a mismanaged firm that needs its value unlocked. It's a solid company with a solid history.
This surge in M&A activity augers well for the economy, I think. It shows that investors are getting tired of ultra-safe low-yield instruments and are hungry for higher returns. Going out and swallowing whole firms is one way to get that, but so is actually acquiring physical stuff—buildings, trucks, machinery—which should mean more output.
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