Opportunity To Man See’s Candy Assembly Line With Warren Buffett, Wrap Chocolate I Love Lucy-Style Has Passed You ByBy Bess Levin
The CharityBuzz auction benefiting “Communities In Schools of Los Angeles” is over and it’ll be winning bidder Jack Staub who gets to tour the candy factory with the Oracle of Omaha, whose love for See’s peanut brittle, mixed nuts, and licorice nearly rivals the way he feels about Cherry Coke. Better luck next time. [Related, Related]
In an interview on CNBC, He said that Cyprus demonstrates, “an old truth, you can’t trust bankers to govern themselves. A banker who’s allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it, if the civilization doesn’t have rules that prevent it.” Warren Buffett’s right-hand man added, “What happened in Cyprus was very similar to what happened in Iceland, it was stark raving mad in both cases. And the bankers, they’d be doing even more if the thing hadn’t blown up. I do not think you can trust bankers to control themselves. They’re like heroin addicts.” [SFG]
Classically, the “Background of the Merger” section of a merger proxy is where you get the fun details of how the deal came to be, from which you can perhaps extract a sense of whether or not the deal is a good one for shareholders. But it’s written by lawyers so sometimes their idea of “fun details” differs from yours and mine. Here is a critical moment a week before Heinz agreed to be bought by 3G and Berkshire Hathaway, from Heinz’s merger proxy:
On February 8, 2013, representatives of Davis Polk and Kirkland & Ellis had a conference call to continue negotiations concerning the merger agreement. During the call, Kirkland & Ellis noted that the Investors were willing to accede to Heinz’s request that Heinz be permitted to pay regular quarterly dividends prior to closing of the Merger. Kirkland & Ellis noted that, while Heinz had reserved comment on the remedies for a debt financing failure proposed by Kirkland & Ellis in the initial draft of the merger agreement, the Investors’ willingness to enter into a transaction was conditioned on Heinz’s remedies in those circumstances being limited to receipt of a reverse termination fee. Kirkland & Ellis noted, however, that the Investors would withdraw their initial proposal that Heinz would not be entitled to any remedies if the merger were not consummated due to a failure of the debt financing that resulted from a bankruptcy of those financing sources. In addition, Kirkland & Ellis stated that they expected that the Investors would be willing by their guarantees to guarantee liabilities of Parent and Merger Sub under the merger agreement (including liabilities for breach of the merger agreement) up to a cap on liability equal to the reverse termination fee if it became payable (as the Investors had previously proposed). Kirkland & Ellis also reiterated that the Investors were unwilling to agree to a “go-shop” provision but confirmed that they were willing to accept a customary “no-shop” provision with a fiduciary out, which would allow the Heinz Board, subject to certain conditions, to accept a superior offer made following the announcement of the merger agreement. Davis Polk replied with a slanderous description of Kirkland’s mother’s sexual proclivities. Davis Polk suggested that, in lieu of a “go-shop” provision, Heinz might consider a two-tiered termination fee, with a lower fee payable by Heinz if it terminated the merger agreement to enter into an alternative transaction within a limited period of time post-signing. Kirkland & Ellis responded that, while the Investors might have some flexibility on the size of the termination fee, the Investors would not accept a two-tiered fee. Finally, Kirkland & Ellis noted that the standard for efforts to obtain antitrust approvals proposed in the most recent draft of the merger agreement was too onerous in light of the circumstances, but that the Investors would agree not to acquire other food manufacturers during the period prior to closing of the merger if doing so would interfere with obtaining antitrust approvals.
The new hotness appears to be large cash-rich companies directly providing subordinated financing for big LBOs. Microsoft bound itself to Dell via sub debt in its LBO, and now Warren Buffett’s Berkshire Hathaway is doing a very odd LBO of H.J. Heinz with Brazilian private equity firm 3G Capital. Heinz’s announcement of the merger is brief and dull, but Buffett has filed his commitment letter and disclosed that he will “invest $12.12 billion to acquire a package of equity securities consisting of preferred and common stock and warrants issued by Holding. The preferred stock will have a liquidation preference of $8 billion, will pay or accrue a 9% dividend, and will be redeemable at the request of Holding or Berkshire in certain circumstances.” So he’s providing $4bn of common equity and $8bn of preferred leverage. The remaining $11-ish billion of the $23-ish billion purchase price will come from 3G (equity) and from a JPM/WFC-led debt financing.
There’s a basic tactical explanation for the structure, which is that it solves for this equation:
- Berkshire is an unlevered1 equity investor,
- 3G is an LBO shop,
- it’s 3G’s deal – they sourced it, they’ll operate it, they did the press conference – so 3G needs to own more than 50% of the equity,2
- but they’re not gonna put up, like, $12 billion in equity.
On March 30, 2011, Warren Buffett penned an open letter expressing support for his former lieutenant, David Sokol, whose trading activities had been called into question. “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Buffett wrote. Then, a month later, he told shareholders and reporters gathered at the BKR annual meeting in Omaha that, actually, Sokol was a degenerate bum; a piece of garbage that needed to be taken out, lest it stink up the place. (Actual words: “inexcusable,” “inexplicable,” in violation of “the company’s insider-trading rules and code of ethics.” Buffett added that Berkshire “had turned over some very damning evidence” re: Sokol to the Securities and Exchange Commission, to boot.)
Though Sokol did not publicly respond to the comments at the time, they presumably stung quite a bit, since having your unassailable ex-boss basically call you a lowlife does not do wonders for the reputation. Now, a year later, after being informed that the SEC would not be taking action against him, is he in a Zen place about life in general and Buffett’s words specifically? Are the two men cool? Could Sokol see them being friends again one day? At the very least, is he ready to laugh about them? Yes, yes he is. Read more »