)
The deal, and the ripples it creates in the sector, was the buzz of the consumer industry’s annual get-together in Florida this week, sponsored by the Consumer Analyst Group of New York.
In private discussions overlooking a yacht-filled marina or in the hallway between the Nespresso table and the Coca-Cola Freestyle machine, the consensus among executives, analysts and investors was clear: gear up for a new era of belt-tightening, if not more acquisitions and divestitures, in the sector.
"This is the first large deal in years by a financial buyer that calls out the lacklustre fundamentals in the US packaged food space," said Robert Dickerson, an analyst with boutique firm Consumer Edge Research.
Industry veterans are already beset by anaemic sales growth and margin pressure, thanks to weak economies in Europe and the United States, changing consumer demographics, volatile commodity costs and competition from lower-cost rivals.
Some of the principals of 3G Capital, Buffett’s partner in the Heinz deal, were also behind the rise of AmBev, a Brazilian brewer, into the world's largest beer maker, Anheuser Busch InBev. Expansion and cost-cutting were hallmarks of their strategy, and the industry expects it to be the same here.
It is unclear what, if any, other targets 3G might have in mind. Campbell Soup has long been seen as a good candidate, though roughly half of its stock is controlled by heirs of John Dorrance, who invented condensed soup.
Campbell Soup Chief Executive Denise Morrison declined to comment on a potential merger with Heinz, but she did say the news put her on guard. “For me, it's a heightened signal that I’ve got to be even more aggressive about costs,” she said in an interview. “Campbell is always looking for ways to create better productivity and I think this is a good call to action.”
Campbell has already been cutting costs, including by closing factories, as it works to turn around its sagging US soup business.
Given its news, Heinz cancelled its presentation at the annual conference. But that did not stop the chatter.
“Any time there’s a deal, everybody wonders if it’s a catalyst to other deals and that remains to be seen,” said Irene Rosenfeld, CEO of Mondelez International, who last year oversaw the spin-off of Kraft Foods Group. She told Reuters that companies with “good strategic planning” pay more attention to their own circumstances than what happens outside.
ConAgra Foods Inc CEO Gary Rodkin, who just acquired private label food maker Ralcorp, said deal momentum could now pick up, if 3G buys more companies or if other companies get inspired by the Heinz deal. “It just could be the mentality is, ‘that’s how we’re going to create more shareholder value in this industry',” Rodkin said in an interview.
There has already been a wave of much smaller transactions in the food industry, with the split ups of Sara Lee into Hillshire Brands and D E Master Blenders, Kraft into Kraft Foods Group and Mondelez International, and Fortune Brands into Fortune Brands Home & Security and Beam Inc.
SEC wins asset freeze after Heinz traders fail to appear
A US judge froze a Goldman Sachs Group account that regulators say was used to make suspicious trades in H J Heinz Co, after unknown traders failed to appear in court to defend their claims to the assets. When the unidentified traders didn’t show up at a hearing on Friday in Manhattan, US District Judge Jed Rakoff said he would grant the US Securities and Exchange Commission’s request to freeze the Goldman Sachs account in Zurich until the case is resolved. “They can hide, but their assets can’t run,” Rakoff announced, saying he had granted the SEC’s request and signed the freeze order.
