The Heinz LBO: How 3G Capital and Berkshire Hathaway Split a $28B Take-Private 50/50 on Votes and 25/75 on Economics

The standard mega-LBO consortium is a group of financial sponsors who each write roughly equal equity checks, sit on a joint board in rough proportion to those checks, and coordinate strategic decisions through a coordinating committee. Seven sponsors at SunGard, four at Freescale, two at Harrah's, three at TXU — the ratio of votes to economics is one-to-one, and every big decision needs a majority of sponsors to agree.

On February 14, 2013, 3G Capital and Berkshire Hathaway announced a $28 billion take-private of H. J. Heinz Company that broke that template completely. Berkshire committed $12.12 billion of capital — three times what 3G committed — but agreed to accept exactly the same 50% voting weight in the parent holding company. Berkshire took a mostly-preferred position: $4.12 billion of common, $8.0 billion of 9% cumulative perpetual preferred stock, plus warrants to buy additional common at a nominal exercise price. 3G took a pure-common position: $4.12 billion of common, and unilateral operational control of the underlying business. The financing was rounded out with $14.1 billion of new debt arranged by JPMorgan Chase and Wells Fargo.

At the moment of announcement, this was the largest transaction in the history of the food industry. Heinz shareholders got $72.50 per share in cash — a 20% premium to the unaffected $60.48 closing price on February 13, 2013 — and the tender closed on June 7, 2013, at which point HNZ ceased trading on the NYSE. Bernardo Hees, a 3G partner and the outgoing CEO of Burger King Worldwide, was named CEO of Heinz effective the same day.

The interesting question is not why the deal happened — 3G's Burger King template had proven the playbook and Berkshire was the natural check-writer for a scale-up. The interesting question is how the capital structure was assembled. This is a rare structural template in mega-LBO history, and it is worth understanding in detail.

What 3G and Berkshire actually bought

Heinz in fiscal 2013 reported revenue of $11.53 billion (fiscal year ended April 28, 2013) — a scaled, multi-brand global consumer packaged goods portfolio anchored by ketchup, condiments, and infant food. The company was profitable, cash-generative, and had been for decades. William R. Johnson had been CEO for 15 years. What Heinz did not have was any obvious catalyst — the stock had traded in a range around $50-60 for most of the prior two years, and the market's default view was that a well-run mature CPG franchise trading at 10-11x EBITDA was fairly valued.

3G Capital and Berkshire Hathaway paid $72.50 per share — a 13.9x LTM EBITDA multiple per the Heinz DEFM14A merger proxy. That is above the trading range but not egregious for a scaled consumer franchise; it is materially below the 21.7x Blackstone paid for Hilton or the peak-cycle multiples that defined the 2005-2008 mega-LBO cohort. Fair value plus a modest control premium, financed with disciplined leverage and a lot of Berkshire's balance sheet.

Here is the closing capital structure.

Three features of this capital structure deserve attention.

The Berkshire preferred is the key innovation

The single most important item in the table above is the $8 billion of 9% cumulative perpetual Series A preferred stock — 80,000 shares at a $100,000 per-share liquidation preference. This is what let the deal happen at the size it did.

Understand what this instrument was. It sits above the common in the capital structure. It pays a 9% cash coupon annually on the $8 billion liquidation preference — that is $720 million per year in guaranteed cumulative cash to Berkshire, senior to any dividend or capital return to the common. It has no fixed maturity, but it is redeemable at the issuer's option after a lock-out period, with a modest premium. Berkshire got warrants to buy additional common at a nominal exercise price as sweetener. The preferred is not debt — it does not trigger the covenants of a syndicated bank facility, it does not sit inside the senior-secured collateral pool, and its coupon is discretionary in extremis (though the cumulative feature means unpaid coupons accrue). But economically it behaves much like a 9% junior subordinated bond issued to a single institutional holder.

The instrument is expensive relative to what a widely-syndicated high-yield bond would have priced at in early 2013. Investment-grade issuers were pricing 30-year unsecured paper below 5% at the time. What Berkshire got in exchange for the 400+ basis point premium was two things: first, a preferred position senior to the common in a $28 billion mega-LBO where equity risk was real; second, the equity-flavored upside of the warrant coverage and the option to convert some of the position to common if the deal worked. From 3G's perspective, the preferred was a way to access $8 billion of subordinated financing without going to the widely-syndicated junk bond market, without accepting the covenant packages that a $8 billion high-yield issuance would have imposed, and without adding a large fixed-maturity obligation to the balance sheet that would need to be refinanced on a specific schedule.

The preferred was redeemed by Kraft Heinz on June 7, 2016 — exactly three years after the take-private close — for aggregate cash consideration of $8.32 billion, a $320 million redemption premium over the $8.0 billion liquidation preference. Over that three-year window, the preferred also paid approximately $2.16 billion in cumulative 9% dividends. Berkshire's realized MOIC on the preferred tranche alone was about 1.31x over three years, translating to a mid-teens IRR — independent of any performance of the underlying common. That is a substantially better outcome, on a risk-adjusted basis, than any long-dated senior debt Berkshire could have originated in 2013 and better than most publicly-traded high-yield paper of comparable duration.

For a deeper look at how preferred instruments and common equity checks combine into a sponsor's blended IRR on a mega-LBO, see MOIC vs IRR — the arithmetic explains why the preferred outperformed the common even though the common had the theoretical upside.

50/50 voting with unequal economics is deliberate governance

The second feature worth studying is the voting structure. Berkshire wrote a $12.12 billion check. 3G wrote a $4.12 billion check. Berkshire's economic exposure was almost exactly three times 3G's. And yet Berkshire and 3G each received exactly 50% of the voting interest in Hawk Acquisition Holding Corporation, the parent holding company that owned Heinz.

This is not an accident of negotiation. It is the specific structure that lets a mega-LBO consortium combine two very different investor types: an operationally-capable sponsor (3G) that needs unilateral control to run the playbook, and a capital-heavy passive co-investor (Berkshire) that needs downside protection through the preferred stack and voting parity that stops the operating partner from doing something reckless. If Berkshire had taken voting weight in proportion to economics — say 75% — it would have had de facto control, and 3G's operating discipline would have required Berkshire's sign-off on every material decision. That is not how 3G operates portfolio companies. If Berkshire had taken voting weight in proportion to common ownership only — 50% of the common — it would have been minority on the votes, and the preferred stack would have looked structurally more like debt, which would have been priced differently.

50/50 with unequal economics is the compromise. Berkshire gets its money back first (through the preferred and its warrants), gets equal votes as a governance backstop, and delegates the operating role. 3G gets pure common exposure and unilateral operational control. The two sponsors do not need to agree on operating decisions; they only need to agree on strategic ones — capital structure changes, major dispositions, changes in senior management outside 3G's slate, exit-transaction execution.

This is the template that would be replicated in Burger King's 2014 combination with Tim Hortons — Berkshire wrote a $3 billion 9% preferred to fund the cash portion of the Tim Hortons consideration, with 3G continuing to control the combined RBI operationally. Heinz was the first at scale; RBI was the sequel.

The operating playbook, applied

3G's operational template at Burger King had four elements. Solo operational control (even inside a co-sponsor deal, one sponsor runs the company). Immediate CEO replacement with a 3G partner on close. Zero-based budgeting applied to SG&A. Aggressive business-model rationalization — refranchising in restaurants, plant closure and headcount reduction in CPG.

All four elements were applied at Heinz on close.

Element one: 3G ran the company. Berkshire's role was capital-and-endorsement. Warren Buffett publicly supported the transaction, and Berkshire took its board seats, but the day-to-day operating decisions and the strategic direction were 3G's. Bernardo Hees reported to Alex Behring, 3G's co-founder, not to a joint sponsor committee.

Element two: CEO change on close. Bill Johnson, Heinz CEO for the prior 15 years, was replaced with Bernardo Hees effective the June 7, 2013 close. Hees had come directly from CEO of Burger King Worldwide (which had itself been through the 3G template in 2010-2012). Within the first year, 11 of the top 12 executives Hees inherited from the Johnson era were removed and replaced with 3G partners, prior 3G portfolio-company operators, or internal promotees from younger cohorts of Heinz management. The signal was intentional: the operating team that ran Heinz under Johnson was not the operating team that would run it under 3G.

Element three: zero-based budgeting. Every G&A line — headcount, T&E, real estate, IT, marketing, corporate perks — re-justified from zero each fiscal year rather than incremented from the prior year's budget. Reported SG&A declined materially in the first 12-18 months post-close. ZBB works less because of any specific savings identified in year one and more because it forces every corporate function to explain what it does and why it should exist at all.

Element four: rationalization. In November 2013 — just five months after close — Heinz announced 1,350 job cuts across North America, including approximately 350 positions at the 1,200-person Pittsburgh headquarters, and three plant closures (in South Carolina, Ontario, and Idaho). This was the CPG equivalent of the refranchising 3G had done at Burger King in 2010-2011: aggressive footprint rationalization in year one, structurally lower SG&A base from year two onward, and margin expansion as the run-rate cost base normalized against a stable revenue line.

For the two years between the June 2013 close and the July 2015 Kraft merger, the operating thesis worked. EBITDA margins expanded, SG&A ratios declined, and the private Heinz threw off enough cash to service the $14.1 billion of new debt without material stress.

The 2015 Kraft merger, and why it wasn't an exit

On March 25, 2015 — less than two years after the Heinz close — 3G and Berkshire announced a merger with Kraft Foods Group, the North American packaged food business that had been spun off from the international Mondelez business in 2012. Kraft Foods Group was public (NASDAQ: KRFT); Heinz was private (owned by Heinz Holding, the 3G/Berkshire parent).

The mechanic: Kraft Foods Group merged into a wholly-owned subsidiary of Heinz Holding, and the combined entity was renamed The Kraft Heinz Company (NASDAQ: KHC). Kraft public shareholders received a special cash dividend of $16.50 per share at close — approximately $10 billion in aggregate — plus one share of KHC common stock for each Kraft share. Post-close, legacy Heinz Holding shareholders (3G, Berkshire, and Heinz management rollover) held 51% of KHC common; legacy Kraft public shareholders held 49%.

The $10 billion special cash dividend to Kraft holders was funded by a fresh $10 billion equity contribution from 3G and Berkshire, split proportionally to their existing common ownership. In other words: the sponsors did not receive cash at close of the Kraft merger. They contributed more cash. In exchange, they converted their combined private Heinz common stock into public KHC common stock — a materially more marketable position, though still subject to sponsor sell-down discipline.

This is the same rollover-into-public-stock template 3G had used at Burger King in the 2014 Tim Hortons combination — a stock-plus-cash merger where the sponsor rolled its private common into public common of a larger combined entity without triggering a taxable disposition. From an LP-reporting perspective, at the moment of the Kraft merger close, 3G and Berkshire had marked-to-market gains on the Heinz platform but no realized DPI beyond the preferred dividends Berkshire had collected. Realized cash returns depended on subsequent KHC share-price performance and on the pace of the sponsors' sell-down.

The Berkshire preferred was redeemed the following year — June 7, 2016, for $8.32 billion in cash. That was the first material cash return to Berkshire on the deal, and it substantially de-risked Berkshire's aggregate position: after redemption, Berkshire's remaining exposure to the underlying business was just the $4.12 billion common tranche plus the warrant coverage plus what had been contributed at the Kraft-merger step.

The 2019 writedown, and what actually broke

The story that followed is a well-documented cautionary tale. On February 21, 2019, Kraft Heinz disclosed a $15.4 billion goodwill and intangibles impairment against the Kraft brand and the Oscar Mayer brand — one of the largest single writedowns in US corporate history since the financial crisis. Concurrently, the quarterly dividend was cut 36% (from $0.625 to $0.40 per share) and the company disclosed an SEC subpoena related to procurement-accounting practices. The stock fell 27% the following trading day, from $48.18 to $34.95.

Warren Buffett publicly acknowledged that Berkshire had "paid too much for Kraft," and Berkshire marked down the carrying value of its KHC common position by roughly $3 billion in the same quarter. 3G Capital, which had begun trimming its KHC position in 2018, sold approximately 25 million shares in 2019 and distributed about 7% of KHC common to LPs in 2022 before fully exiting its remaining ~16.1% stake in the fourth quarter of 2023 — ending nearly 11 years of continuous ownership of the underlying Heinz business.

What broke was not the 2013 Heinz LBO. The 2013 take-private of the standalone Heinz business had worked cleanly: cost discipline, margin expansion, cash flow sufficient to service the leverage and to redeem the Berkshire preferred at a premium in 2016. What broke was the 2015 Kraft layer stacked on top. The Kraft brands the 2019 writedown targeted — mid-tier processed cheese, deli meats, packaged dinners — were structurally impaired at any operating cost base. Private-label share gain, generational shift away from processed food, and retailer margin compression together depressed the top line in categories where 3G's cost-discipline template could protect but not create demand.

The lesson is worth naming precisely: operational alpha is real, but it is not sufficient. Cost cuts protect a return in a business whose underlying demand is stable. In a business where the category itself is in secular decline, no amount of SG&A rationalization creates growth — and eventually the goodwill on the balance sheet, which was a specific claim about the future cash flows of specific acquired brands, has to be written down against those cash flows that never materialized.

If you want to pressure-test how much operational alpha versus category tailwind versus multiple expansion actually drives a sponsor's return in a mega-LBO model, our LBO returns calculator lets you separate the three drivers. And the debt capacity calculator is a fast way to see how much leverage a business can carry as its EBITDA base compresses under category pressure — which is exactly the pressure that killed the Kraft Heinz post-merger equity value.

What to take from this

Three things.

First, on the capital structure: the Berkshire preferred is the single most instructive instrument in a modern mega-LBO. $8 billion at 9% cumulative coupon, redeemable in three years at a modest premium, sitting above common and below senior secured debt. It delivered a mid-teens IRR to Berkshire independent of any performance of the underlying common — a materially better outcome than the common equity investment produced over any subsequent holding period. Any sponsor or LP thinking about mega-LBO capital structures today should understand this instrument as one of the most successful examples of preferred-financed private equity in the post-crisis era.

Second, on the governance: 50/50 voting with 25/75 economics (roughly) is a deliberate structural design, not a negotiating outcome. It combines the operating capability of one sponsor with the balance sheet of another at a scale neither could reach independently, without giving the capital-heavy sponsor de facto operational veto or leaving the operating sponsor exposed to the capital-heavy sponsor's exit. It is the template that lets Berkshire (or any similarly large passive co-investor) participate in mega-LBOs without needing to develop operating capability, and it is the template that lets 3G (or any similarly operating-focused sponsor) access checks larger than its own fund without diluting its operational control. Every serious sponsor thinking about scaling above $10 billion of equity per deal should understand it.

Third, on the operating thesis: the 3G Heinz playbook worked. Cost discipline, CEO change, ZBB, plant rationalization — the standard 3G template applied at seven times the scale of Burger King — delivered the operating alpha it was supposed to. What did not work was the 2015 layer of Kraft brands stacked on top of the Heinz platform. The mistake, in retrospect, was not the 2013 take-private; the mistake was assuming the same operating template that had worked at Burger King and at standalone Heinz would work at a $60 billion-plus combined revenue portfolio of secular-declining consumer brands. For anyone underwriting an operational-alpha thesis in an LBO model today, the Heinz case is a proof point that the template works — and the Kraft Heinz case is a proof point that it works only where category economics cooperate.

The Heinz deal is one of the rare mega-LBOs where the underwriting was disciplined, the capital structure was innovative, the operating playbook was applied as advertised, and the return outcome was still meaningfully worse than the sponsors expected. Buying the right business at the right price, with the right structure and the right operator, is necessary but not sufficient. The environment in which that business operates matters more than any of the four.

Model this yourself

If you want to build a fully-populated LBO model with mixed preferred and common tranches, a co-sponsor governance structure that separates voting from economics, mid-hold recap distributions, and a subsequent strategic-merger rollover that converts private common into public stock — exactly the capital-structure geometry the 3G / Berkshire Heinz deal illustrates — our All-in-One PE Model is built for it. The 26 sheets include a full LBO sheet with preferred-plus-common cap-table waterfall, a dedicated sources-and-uses schedule, dual 5×5 MOIC and IRR sensitivity, and a distribution waterfall that handles the interim redemption of a preferred tranche. See the sheet preview if you want to verify the structure before buying.

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Sources:

1. H. J. Heinz Company — Form 8-K (February 14, 2013), Merger Agreement Announcement, SEC EDGAR
2. H. J. Heinz Company — Form DEFA14A (February 15, 2013), Definitive Proxy Solicitation Materials, SEC EDGAR
3. H. J. Heinz Company — Form PREM14A (March 2013), Preliminary Merger Proxy Statement, SEC EDGAR
4. H. J. Heinz Company — Form DEFM14A (April 2013), Definitive Merger Proxy Statement, SEC EDGAR
5. H. J. Heinz Company — Form 10-K (FY2013, fiscal year ended April 28, 2013), SEC EDGAR
6. H. J. Heinz Company — Form 10-KT (Transition Period ended December 29, 2013), SEC EDGAR
7. Berkshire Hathaway Inc. — Form 8-K (February 14, 2013), Heinz Announcement, SEC EDGAR
8. Berkshire Hathaway Inc. — Form 10-K (FY2013), Heinz Investment Disclosure, SEC EDGAR
9. The Kraft Heinz Company — Form 10-Q (Q2 FY2015), First Reporting Period Post-Merger, SEC EDGAR
10. The Kraft Heinz Company — Form 10-K (FY2016), Full Structural and Financial Disclosure, SEC EDGAR
11. Kraft Heinz Press Release, "H.J. Heinz Company and Kraft Foods Group Sign Definitive Merger Agreement to Form The Kraft Heinz Company," March 25, 2015, Kraft Heinz
12. Berkshire Hathaway Press Release, "H.J. Heinz Company Enters Into Agreement to Be Acquired," February 14, 2013, Berkshire Hathaway
13. CNBC, "Berkshire Hathaway, 3G Buying Heinz for $23.3 Billion," February 14, 2013, CNBC
14. Pittsburgh Post-Gazette, "$28 billion sale of Heinz to Berkshire Hathaway, 3G Capital closes," June 7, 2013, Post-Gazette
15. Bloomberg, "Heinz Gets $14.1 Billion Financing for Berkshire, 3G Buy," February 15, 2013, Bloomberg
16. Forbes, "Kraft Heinz Plunges After $15 Billion Writedown, Dividend Cut And SEC Probe," February 21, 2019, Forbes
17. CBS News, "Kraft Heinz stock price today: Shares plunge on investigation, $15 billion write down," February 22, 2019, CBS News
18. CNBC, "3G Capital quietly exited its Kraft Heinz investment last year," April 9, 2024, CNBC