Stocks opened nicely higher this morning, with the S&P 500 (SNPINDEX:^GSPC) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) up 0.8% each as of 10:05 a.m. EST. That has pushed the Dow to a new all-time high of 14,239 points.
A very rich sauce
On Valentine's Day, when Berkshire Hathaway (NYSE:BRK-B) announced it was tying the knot with H.J. Heinz (UNKNOWN:HNZ.DL), I asked whether Warren Buffett was overpaying for the maker of the iconic ketchup brand. My answer was no -- he was getting value for his dollar. However, according to a filing made by Heinz with the SEC yesterday, if Berkshire and 3G Capital fire Heinz CEO William R. Johnson, he is entitled to receive a "golden parachute" payment worth $56 million. Should he walk out the door of his own volition, however, he will receive a mere $40 million. Every worker should wish for such a well-structured contract -- "Heads, I win; tails, you lose."
Is Mr. Johnson worth this sort of largesse? According to Bloomberg: "Johnson ... has made about 40 acquisitions, helping expand the company into emerging markets. He streamlined the brand portfolio, boosted spending on marketing and ratcheted up innovation, including Dip & Squeeze ketchup packs."
All well and good, but how have long-term shareholders fared as a result? The following chart shows Heinz's performance (on a total-return basis) since April 30, 1998 -- the date on which Johnson assumed the position of president and CEO -- relative to that of the S&P 500:
From start to finish, Heinz has beaten the index by a pretty good margin, but it's worth noting two things:
Over most of the period, Heinz was either trailing or barely ahead of the market.
Most of the outperformance is due to Berkshire and 3G Capital's bid for the company. This becomes very clear once we reproduce the same chart with an end date one day prior to the announcement of the acquisition:
After announcing the bid, Warren Buffett said he hoped Johnson would stay on as CEO, and Johnson himself is game. Buffett didn't negotiate Johnson's original employment contract, so he may be holding his nose in that regard. It's not the first time he has paid up (and, perhaps, overpaid) for executive talent: When Berkshire acquired specialty chemicals maker Lubrizol in 2011, CEO James Hambrick received a whopping $97 million "change of control" payment. It's hard to justify that as value for money.