Warren Buffett says he will not pay a penny more than the $72.50 a share he is already offering for ketchup maker H.J. Heinz Co, and after an initial hesitation, most investors seem to be taking him at his word.
Buffett's Berkshire Hathaway Inc and the Brazilian private equity firm 3G Capital struck a deal Thursday to buy Heinz for $23.2 billion in cash. The legendary investor made clear in a CNBC interview on Thursday that the bid was his final offer.
The deal, which came together in less than two months, offers shareholders a 19 percent premium to what had been the stock's all-time high and a 20 percent premium to the shares' last pre-deal close. But for much of the day on Thursday, shares traded above the offer price, suggesting that some people were holding out hope for a better figure.
That hoped-for figure does not appear to be coming anytime soon, though.
"I'll take a 20 percent premium in this environment any day. It's rich enough that you avoid someone coming in and offering a little more, but then again it's not necessarily in rarefied air," said Matt McCormick, a portfolio manager at Bahl & Gaynor in Cincinnati, which holds Heinz shares.
"Someone could have offered a little more but they're likely not going to go through a proxy fight with Buffett."
Heinz shares ended Thursday precisely at the offer price, and as of Friday afternoon were down 0.4 percent at $72.22. At least half the sell-side analysts covering Heinz came out with notes following the deal describing the price as fair, or even a bit rich by historical standards.
"We're pleased with the deal — any time you can get a 20 percent premium on a food stock like this, it's a good thing," said Michael Sadoff, portfolio manager at Sadoff Investment Management in Milwaukee.
The Berkshire/3G offer represents a price of just over 19 times expected fiscal 2014 earnings, which is Heinz's next fiscal year. By comparison, the company's self-identified peers trade for an average of 17.3 times the next fiscal year's expected earnings.
Taken another way, Berkshire is offering about 14 times expected earnings before interest, taxes, depreciation and amortization. Bankers familiar with the consumer staples sector say buyouts usually come in around 10 times EBITDA, suggesting again that Buffett was offering a full price.
"The premium seems fine to us. We've held on to Heinz for a few years and it's been a good one for us. Of course we'll have to find something else to buy that's comparable, but I'm not complaining," said Michael Aronstein, president and chief investment officer at Marketfield Asset Management in New York.
Raising the bid even $1 would require just over $320 million in extra cash, a relatively small sum for such a large offer. Whether the buyers would come up the extra cash, though, is the question.
Buffett is fond of take-it-or-leave-it offers and is not one, historically, for renegotiating. Berkshire is also putting three times more cash into the deal than 3G, raising questions as to how they would split any increase.
"We don't think it's likely he'd raise the premium. Warren doesn't respond to pressure — he'd just walk away if there was opposition," Aronstein said.