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Shareholder Suits Nay Not Stop Heinz Acquisition by Berkshire and 3G Capital Management

Source: Pittsburgh Post-Gazette

Posted on 20 Feb 2013 by Neilson

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Heinz acquisitionTwo lawsuits filed late Friday on behalf of H.J. Heinz Co. shareholders may not stop the purchase of the company by Berkshire Hathaway Inc. and 3G Capital Management LLC.

Lawsuits challenging mega-purchases, such as those by Maryland company Hannon's Inc. and Californian James Clem to halt the proposed $28 billion acquisition of Heinz by the two investment firms, are par for the course in big deals.

"Any time there's a large merger like this, these things come up," said Mitzi Leasha George, an attorney with a background in mergers and acquisitions with the Nashville firm Leitner Williams Dooley & Napolitan, who is not involved in the Heinz deal. "Shareholders always want more money, and they want to ensure that the process was done fairly."

Attorneys from Pittsburgh and three other cities, representing Hannon's and Mr. Clem, wrote in two complaints that the $72.50 per share price negotiated for Heinz shares was "an unfair price" stemming from "an unfair sales process."

"The [Heinz] board and company management support the proposed acquisition in order to secure liquidity for their illiquid holdings in the Company," the attorneys wrote. "From the sale of their illiquid block of shares in the proposed acquisition, the Board and Company management will receive more than $400 million."

The complaints note that Heinz stock was trading at "an all-time high of $61 per share" a week earlier. They suggested that a price better than $72.50 could have been obtained, except that Heinz management would not communicate with any other potential bidders, took other steps to discourage competing offers, and agreed to pay a "termination fee" of "tens of millions of dollars" if the food company opts to accept "a superior proposal."

The lawsuits in U.S. District Court seek a declaration that the proposed acquisition is unlawful, a requirement that any purchase of Heinz come through "a fair sales process," and payment of attorneys' fees.

Ms. George said the filings trigger a 45-day deadline for the plaintiffs and defendants to either agree on an appropriate value for Heinz shares or pick a binding process for determining that value. If they are unsuccessful in reaching any agreement, lengthier litigation can ensue, but usually consensus is reached within the deadline.

"You don't want to have any undue delay in the [acquisition] process," Ms. George said. "You want to make sure it's fair and that everybody gets what they consider fair value.

"I would be shocked if Heinz or 3G or Berkshire is not ready to respond to this demand and reach agreement," she said.

Representing Hannon's and Mr. Clem are Pittsburgh attorney Alfred G. Yates and the San Diego firm Robbins Geller Rudman & Dowd. Representing Hannon's only is Kip B. Shuman of Boulder. Representing Mr. Clem only is Corey D. Holzer of Atlanta.

A Heinz spokesman declined comment. Spokesmen for co-defendants Berkshire Hathaway and 3G Capital could not be reached. Other defendants include Heinz CEO Bill Johnson and other Heinz executives and board members.