The owners-elect of Heinz have effectively brought in their own man to run the US food giant.
Private-equity firm 3G Capital yesterday (11 April) announced Bernardo Hees, boss of fast-food chain Burger King, had been lined up to become the new chief executive of Heinz.
The announcement came two months after 3G and Warren Buffett’s Berkshire Hathaway investment fund agreed a US$28bn deal to buy Heinz in what is purported to be the largest-ever takeover in the food sector.
All the early attention centred on Buffett but Berkshire Hathaway is to take a back seat in the running of Heinz. The fund and 3G will both own 50% but the management of the baked beans group will reside with 3G. And the move to install Hees as Heinz’s new CEO further underlines that division of labour.
Hees became Burger King CEO after 3G took the chain private in the autumn of 2010 and at a time when sales and profits were declining. For the year to 30 June 2010, the last financial year before Hees took the helm, sales, comparable-restaurant sales, net income and earnings per share fell year-on-year.
3G re-floated a minority stake in Burger King last year, keeping hold of 71% of the chain. And this February, just days after the deal for Heinz was announced, the Whopper purveyor announced results for the 2012 calendar year, which indicated something of a turnaround under Hees.
Sales were down in 2012 versus 2011, affected by foreign exchange, but comparable sales increased and, notably, net income and EPS were up.
Hees’ tenure did not prove spotless – last year, Burger King lost its position as the number two fast-food chain in the US to Wendy’s – but the Brazilian shook up the business. He re-franchised over 870 restaurants, meaning 97% of Burger Kings were in the hands of franchisees, which slashed costs and boosted profits. Menus were revamped to try to expand the chain’s customer base. Comparable sales both in the US and internationally outpaced McDonald’s. And since it returned as a public company to Wednesday – the day before Hees’ switch to Heinz was announced – shares in Burger King are up 23%.
3G MD Alex Behring (who remains executive chairman at Burger King) said yesterday Hees had an “unparalleled track record of delivering results”. Behring said: “Over the past two and a half years at Burger King, Bernardo grew adjusted EBITDA by 44 percent and expanded the company’s adjusted EBITDA margin by 14% from 19% in 2010 to 33% in 2012. His combination of experience, leadership skills and broad understanding of the food industry make him the ideal leader to drive the next chapter in Heinz’s storied history.”
Hees is set to take the helm at Heinz when the takeover of the business goes through. The company and its prospective owners expect that to be by the autumn. The 43-year-old will become only Heinz’s seventh CEO since it was formed in 1869. He will replace Bill Johnson, who joined Heinz in 1982 and took charge in 1998. There have been challenges – remember the battle in the summer of 2006 with activist investor Nelson Peltz, who ended up on the Heinz board – but the company is seen to have improved under the American.
“Bill is one of many smart, self-assured people running companies but he wants to win so badly that he’s been willing to respond to kairotic moments with big moves; poor performance met with divestiture, activist shareholders with cost cutting, an economic crisis with a radical focus overseas and finally, the buyout offer accepted. The execution was swift even when the strategies were risky, and it added up to a big win for shareholders,” Jonathan Feeney, MD at equity analysts Janney Montgomery Scott, said.
But what shape is Heinz’s “next chapter”, as Behring put it, likely to take? 3G is renowned for a laser focus on productivity, with FMCG industry watchers pointing to its investment in Brazilian brewer Ambev, which is now part of Anheuser-Busch InBev, the world’s largest beer maker. The changes at Burger King under 3G, overseen by Hees, would support the view that cost is paramount to the private-equity group.
When the deal for Heinz was announced, reporters at a media conference in Pittsburgh asked repeatedly about the prospect of cost cuts; one reporter directly referred to 3G’s record of “aggressive” cost cutting. Behring insisted it was too early to comment. “We have several months ahead of us to get to understand the team and the people,” he said. “If you compare with some of the businesses we got involved with in the past this is a company that’s doing extremely well as it is and has been doing extremely well for a number of years prior to our involvement.”
In recent years, Heinz did embark on some wide-ranging restructuring moves but there has been some concern over the recent performance of some of Heinz’s assets (think its US frozen operations) and, with 3G and Hees leading Heinz, the prospects for significant change at Heinz appear to grow.
However, it is unlikely to be just about cost. Building on Heinz’s presence outside the US – enviable when compared to its US peers – is also likely to be central to 3G and Hees’ strategy. With competition intensifiying in the US, Hees sought to further build Burger King’s presence overseas, with deals in Central America and South Africa.
What is clear is that, in Hees, 3G has brought in an executive it knows well and one it believes can implement its plans for Heinz.