When it came to acquisitions, Warren Buffett used to go it alone. But all that changed in 2013, when he partnered with investment firm 3G to buy Heinz for $29 billion and take it private.
Given how much he sings the praises of the deal in Berkshire Hathaway’s (BRKA) annual report—released on Saturday morning—it’s safe to assume Buffett will be open to more such tangos in the coming years (he’s already invested in 3G-owned Burger King’s takeover of Tim Hortons). “I knew immediately that this partnership would work well from both a personal and financial standpoint,” he writes. “And it most definitely has.” Indeed, so far, it seems to have worked even better for Buffett than it has for 3G—or Heinz.
From the “personal” standpoint, Buffett says he has benefited from his decision—yet another departure from the Berkshire way—to allow 3G’s executives, Chairman Alex Behring and CEO Bernardo Hees, to run the food company with little input from the Oracle of Omaha. Some of those decisions have included the politically charged moves to shutter at least seven factories and cut several thousand jobs. While Buffett has the right, as a holder of 50% of the voting interests, to weigh in on any move, he has said repeatedly that he has left the heavy lifting to the 3G team. “I’m not embarrassed to admit that Heinz is run far better under [3G] than would be the case if I were in charge,” he says.
That decision has also allowed Buffett to keep his name far away from the bloodletting that has occurred at Heinz—the kind of bloodletting that doesn’t go well with Buffett’s reputation as someone who buys companies to grow rather than shrink them. Indeed, sales at Heinz appear to have dropped in 2014, down to $10.9 billion from $11.7 billion in 2012, the year before the merger.
From the financial side of things, the deal looks like an absolute home run for Berkshire so far, despite concerns that the original valuation was too high. As the annual report reveals, Berkshire has collected every dollar that Heinz has earned since the merger and more, thanks to the massive chunk of preferred stock—with 9% annual dividends—that it owns. In the year ended December 28, 2014, Heinz earned $657 million but paid out $720 million in dividends to Berkshire, resulting in a net loss of $63 million for the company’s common shareholders. (It’s worth noting, of course, that since Berkshire owns 50% of the stock, that loss is partly borne by Berkshire.)
It’s enough to give new meaning to the term “anticipation,” made famous in those Heinz commercials of old: What will the team buy next?
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