H.J. Heinz Co.’s longtime leader, Bill Johnson, stood in the ballroom at the Four Seasons Hotel San Francisco, addressing the ketchup maker’s top 50 executives for the last time. Around the corner in a smaller room, his successor as chief executive officer, Bernardo Hees, waited to tell some of the same managers whether they still had jobs.
What was slated as an annual leadership meeting became an opportunity for Hees to dismiss 11 senior executives, according to three people familiar with the gathering. The June 17 session was about a week after Heinz’s $23.3 billion sale to Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital.
Since taking over at the Pittsburgh-based food processing company, Hees has eliminated hundreds of jobs, grounded corporate jets and pulled the plug on mini-fridges at the office. Savings will help pay down $12.6 billion in borrowing supporting the deal.
“The more cuts, the more quickly they can reduce the debt,” said Dave Novosel, an analyst at Gimme Credit LLC. “It makes the math work better.”
The management turnover contrasts with Berkshire’s normal approach. When Buffett buys a company, he typically leaves senior employees in place and commits to holding the business forever.
Heinz isn’t “the classic Buffett playbook, which is buy a great business and pretty much leave it alone,” said Jeff Matthews, a Berkshire shareholder and author of books about the company.
Annual interest expense at Heinz probably doubled to $560 million since the takeover, according to Novosel. Omaha-based Berkshire also holds $8 billion in preferred stock that receives a 9 percent dividend, or $720 million a year.
Managing those costs falls to 3G. While Buffett committed more than $12 billion to the deal and has 50 percent of the common equity, Lemann’s firm is in charge of operations at the world’s largest ketchup maker, which also sells Ore-Ida potato snacks and had 31,900 employees at the end of its fiscal year.
An August memo obtained by Bloomberg News outlines new rules. They limit printing to 200 pages a month per employee and restrict color pages to “customer-facing purposes.” Employees can spend no more than $15 a month on office supplies and are expected to reuse items such as box files. To save on electricity, mini-refrigerators are not permitted and staff should rely on appliances in common areas.
Such measures suggest there’s not much fat to trim, said Noel Hebert, chief investment officer at Bethlehem, Pa.-based Concannon Wealth Management. Under pressure from investor Nelson Peltz in 2006, Johnson embarked on a plan to lower expenses by $355 million.
“When you start getting down to the amount of paper you can use, it’s telling you the obvious stuff is gone,” said Hebert.
Heinz shook up leadership to promote accountability and faster decision-making, according to a statement from Michael Mullen, a spokesman. He declined to comment on the analyst’s estimates or accounts from people who requested anonymity.
“Heinz will reinvest more of our dollars where they directly impact our business — in our brands and our products, and most importantly, in benefiting our consumers,” Mullen said.
Employee spending on business trips was limited to $45 per day for food and incidentals, two of the people said. The aviation department, which included two leased aircraft and a company-owned Gulfstream IV, was shut, according to one.
Office jobs have been a particular target for Hees. About 600 were cut in the United States and Canada, the company said in August, the month it announced about 250 positions were in jeopardy in the U.K. and Ireland.
Heinz expects annual savings of about $150 million from 1,200 job cuts, according to a filing.