A great American brand can become too big for its American britches. Heinz is selling itself to Brazilian 3G Capital and Warren Buffett for $23 billion. Buffett will take his dividends on preferred stock and give operating control to 3G Capital. A venerable American company is heading south to a BRIC powerhouse. This is not the first time great American company to fall into Brazil’s lap. 3G Capital, headed by Jorge Paulo Lemann, acquired Miami based Burger King in 2010 for $3.3 billion, and played a key role in Belgian/Brazilian In Bev’s acquisition of Anheuser Busch in 2008.
Heinz has made great progress in reorganization and share value since Nelson Peltz secured control of the company in 2006. Peltz cuts costs and grew sales. During his tenure Heinz’ share value increased 44%. Today the company generates 2/3rd of its %11.6 billion revenues outside the U.S., with more than 11% in emerging markets.
While Heinz headquarters will still remain in Pittsburgh for the moment, big management changes are likely to happen. 3G Capital aggressively restructures thee companies it acquires. At Burger King, 3G Capital replaced the CEO, cut staff and squeeze more profits out of declining revenues. The AB InBev merger replaced executives and cut 6% of the U.S. work force.
H.J. Heinz company saturated the U.S. sauce market, its primary revenue generator, and has grown sales in ne off shore markets and foreign acquisition. Its future growth must continue in developing and emerging markets. But can an American management culture grow off shore sales as effectively as a BRIC management culture? Even Heinz Chef Executive William Johnson was surprised. According to WSJ, Johnson was surprised that firms from emerging markets would be capable of taking over America’s most established companies. “I didn’t see this happening eight weeks ago, let alone five years ago,” he said.
The fact is that with a fairly stable U.S. population, the future growth of great American consumer brands that have international reputations, lies in the emerging markets, where there is already enough investment wealth and corporate management experience and to take over American companies and do a better job of overseas expansion. They are looking hard for American target companies with significant off shore revenue. If they found Burger King, Anheuser Busch and Heinz, they will find others.
The growing global middle world is far bigger than the total U.S. population. Unless American companies bring foreign executive, foreign board members and foreign managers to U.S. headquarters, foreign investors will do that for them through acquisition. This cultural transition cannot wait a generation. It is now or never.
Milton Kotler. 3.9.13