Michael Kim was interviewing potential first-year associates from Columbia Law School when the messages began. Soon they were nonstop. "My iPhone was practically smoking," he recalls. By the time he got a chance to check his phone, he had more than 200 emails, sent among Kirkland lawyers who had just been called on to advise 3G Capital and H.J. Heinz Company on the financing for Heinz's $60 billion merger with Kraft Foods Group Inc.
Despite it being a Saturday, the team spent more than seven hours working. By the end of the day, a draft financing structure was already in place. "From then on, it was a whirlwind," Kirkland's Joshua Korff says.
That relentless pace was maintained throughout the transaction. Having signed the merger agreement after just two weeks of round-the-clock negotiations, the deal closed within 100 days. Few mergers of this size and complexity close within six months of signing. Many take nine months or more. "It was insanely complex, and it was done in an equally insanely short period of time," says Cravath's Scott Barshay, who represented Heinz. "It was like nothing I've ever seen before."
The hugely condensed time frame is made all the more impressive by the challenges the deal posed. A key issue was structuring the merger in a way to avoid an expensive refinancing of the existing $23.6 billion debt at both companies. Much of this hinged on securing investment-grade status on $16 billion of new debt, issued in 12 tranches across four jurisdictions, with maturities ranging from two to 30 years.
Kraft already had investment-grade status, but Heinz did not, having been acquired two year earlier by 3G and Berkshire Hathaway Inc. in a highly leveraged buyout. The financing team ultimately succeeded, although barely—the combined company's BBB- rating is the lowest possible investment grade rating. Korff admits that it felt like they were "skating on thin ice" at times.
"It was a bit of a black box—some of the determinations that the ratings agencies make are subjective, so you can't know with certainty what you're going to get," he says. "When your entire transaction rests on something that's out of your hands, it is pretty stressful."
Because the merger would have Heinz go public once again, the share component of the stock and cash transaction, which was issued by Heinz, was effectively an initial public offering. That required additional work to register and clear the issuance with the Securities Exchange Commission, an often lengthy process.
"Nothing could move forward until that happened," says Sullivan & Cromwell's Frank Aquila. "In parallel to dealing with the SEC, we also had to obtain antitrust and competition approvals and clear all the other closing conditions. Given our time constraints, that would be difficult to do in a straightforward $500 million deal, let alone pull off in a merger of this size and complexity."
The day before the transaction was announced, Kraft's board met with the Sullivan & Cromwell team at the firm's New York office. Ahead of their arrival, Aquila asked the staff to lay out a mixture of Kraft products. The resulting spread—a brand-appropriate if culinarily confusing mix of Kraft cheese, Planters nuts and Jell-O desserts—initially met with Aquila's approval. But then he noticed the Oreos, Chips Ahoy! cookies and Cadbury chocolate, which were no longer Kraft brands after the spinoff in 2012 of Kraft's snack food business to form Mondelez International Inc. They managed to frantically clear the offending items just before the Kraft directors arrived.
Although the deal only took around six months from start to finish, "it took everything that every one of us had to get this deal done right," says Barshay. He isn't kidding. After the deal was signed, Barshay went out with the rest of the Cravath team for a celebratory dinner at the upscale restaurant Le Bernardin. And promptly fell asleep at the table.
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