Having turned around H.J. Heinz Co., Chief Executive Officer Bill Johnson may reap about $100 million from the company’s buyout.
Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital Inc. agreed to buy the iconic ketchup maker for about $23 billion. The billionaire buyers will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement yesterday. Johnson, 64, held 1.38 million Heinz shares as of Dec. 17, according to data compiled by Bloomberg News. His total compensation in the fiscal year ended in March was $16.2 million, including $1.3 million of salary.
Johnson, who became Heinz’s sixth CEO in 1998, has made about 40 acquisitions, helping expand the company into emerging markets. He streamlined the brand portfolio, boosted spending on marketing and ratcheted up innovation, including Dip & Squeeze ketchup packs. Heinz boosted sales to $11.7 billion in fiscal 2012, a gain of 8.8 percent from the year before.
“Johnson took Heinz back to basics and turned it around,” said Nancy Koehn, a professor at Harvard Business School in Cambridge, Massachusetts. “In the years before he took charge, performance slid.”
Johnson worked at Ralston, Frito-Lay and Anderson-Clayton Foods before joining Heinz in 1982 as a general manager of new business. In 1988, as head of the poorly performing Heinz Pet Products, he revived the business. Four years later he did the same thing at Starkist Foods. Johnson was named president and chief operating officer in 1996.
He took charge of Heinz at a tough time. In the 1990s, the spread of retailers such as Wal-Mart Stores Inc. and the growth of private-label brands put price pressure on Heinz’s products amid a scramble for shelf space.
Johnson also was forced to contend with activist investor Nelson Peltz, who initiated a proxy battle in 2006, culminating in a vote to place Peltz’s nominees on the board. After the proxy vote, Peltz and another of his nominees joined the board.
Daniel Popowics, a Cincinnati-based portfolio manager at Fifth Third Asset Management, said Heinz was a “fair-to-middling performer” with a “sleepy perception” a decade ago. Popowics, a Heinz investor, said once Peltz got involved, the company “really started to raise the level of their game.”
“If the company had not been as successful in its turnaround, it’s more likely they would have been acquired from less of a position of strength,” Popowics said. “In that case, the name of the company and its location may not have endured.”
After announcing the deal yesterday, Buffett told CNBC he hoped Johnson would remain CEO. In a conference call after the deal was announced, Johnson said he was “way too young” to retire. Still, Buffett told CNBC that 3G has the final say.
“Johnson has done a really good job,” Jack Russo, a consumer staples analyst for Edward Jones & Co. in St. Louis, said in a phone interview yesterday.
Russo said it’s unlikely Johnson will stay.
“This is his chance to be a consultant,” he said. “I am sure he will advise on the sidelines. Berkshire and 3G will be running it going forward. They’ll get his input big time.”
Johnson has credited his father, Bill “Tiger” Johnson with instilling in him a competitive spirit and desire to win. Tiger Johnson was a center for the San Francisco 49ers and then head coach of the Cincinnati Bengals. Heinz’s board under Johnson has included director Lynn Swann, a former Pittsburgh Steelers wide receiver.
Johnson also learned how to motivate people from his father and other coaches. In 1998, the year he became CEO, Johnson told the Pittsburgh Post-Gazette: “Some people need to be handled gently. Other people you can kick in the rear end.”
Heinz, which also makes pasta sauces and baby food, was started by Henry John Heinz in 1869. One of his first products was tomato ketchup and along with adding a tasty relish to meals, he introduced Americans to safe, processed foods. Heinz also initiated progressive labor practices with clean factories that offered immigrant workers citizenship classes.
“He’d seen the labor strife at neighboring steel mills in Pittsburgh, Heinz’s hometown, and decided that wasn’t going to be his company’s environment,” Koehn said.
Heinz understood brand building. He chose the slogan “57 varieties” after seeing an advertisement for a shoe store boasting “21 styles” while riding on an elevated subway in New York City. He chose it at random and because it included the number “7,” which he thought would appeal to consumers of all ages.
In 1900, the company erected Manhattan’s first electric sign on Fifth Avenue and 23rd Street. It was six stories high and included a pickle and the “57 Variety” slogan. A Heinz family member was chairman of the company until the late 1980s.
Heinz rose 20 percent to $72.50 at the close yesterday in New York, for the biggest gain since July 29, 1980.
Meanwhile, credit-default swaps protecting Heinz debt soared 130 basis points to 173.4 basis points at 4:31 p.m. in New York, according to prices compiled by Bloomberg. That’s about four times the level of the contracts before the deal was announced. Swaps typically rise as investor confidence deteriorates.
“Looks like the deal will involve approximately $5 billion in new debt which would almost double Heinz’s debt load,” Anthony Valeri, a market strategist at San Diego-based LPL Financial, said in a telephone interview. “I think the CDS move reflects uncertainty over exactly how much more levered Heinz will be after the transaction.”
Teresa Heinz Kerry, the wife of Secretary of State John Kerry and widow of former U.S. Senator H. John Heinz III, is the heir to the Heinz ketchup fortune. Last month, the Boston Globe reported that the Kerry’s planned to divest almost 100 holdings to avoid conflicts of interest. Heinz wasn’t named as one of the companies that they planned to sell.
Kerry owned Heinz shares valued at about $3 million in 2011, according to the Center for Responsive Politics, a Washington-based organization that tracks the influence of money on politics.
“With its ketchup, beans, pickles and the slogan ‘pass the Heinz,’ this is one of the great brands in the global food business,” said Koehn. “Heinz fits with Berkshire Hathaway’s tradition of buying companies with great DNA and organizational capabilities and then figuring out how to unleash more value. Plus Heinz has the do-it-yourself, cook-at-home products that consumers in this post financial crisis era want.”