https://www.breakingviews.com/considered-view/kraft-heinz-fail-leaves-buffett-and-3g-well-fed/
Egg festoons the faces of Kraft Heinz’s two main investors, Berkshire Hathaway and 3G Capital. The market capitalization of the U.S. maker of Velveeta cheese – of which they own 49 percent – fell by nearly $17 billion on Friday. This came after the company reported poor earnings, cut the value of some of its brands and said U.S. authorities had hauled it over the coals on its accounting practices. Despite that, Warren Buffett’s firm and his private equity partners remain well fed.
Back in 2013, Buffett and 3G bought ketchup maker Heinz, putting in just over $8 billion of equity. When Heinz merged with Kraft in 2015, they added another $10 billion to fund a slug of cash for investors in the target. Since then, they’ve taken out half of the $10.9 billion in dividends paid on Kraft Heinz’s regular shares, based on company filings and Eikon data. And they still own nearly half a company with a market capitalization of $42 billion. That leaves them almost 50 percent better off, on paper.
Buffett got a little extra. Berkshire invested an extra $8 billion into Heinz in return for preference shares and warrants that paid out a cumulative $2.2 billion of dividends, according to Kraft Heinz’s public filings. Kraft Heinz bought back the preferred stock for $8.3 billion in 2016. That slice of the deal alone looks to have netted him just over a 30 percent profit over just three years.
That’s cold comfort for everyone else. Consider investors in Kraft who acquiesced to the Heinz deal in the first place. Their company was worth $36 billion before the market learned of the planned tie-up. They received a $10 billion special dividend, the other half of that $10.9 billion of dividends, and now hold shares worth $21 billion. Tot it up, and they’re barely better off than where they started.
Things might have been different. If a shareholder in Kraft had instead put their money into Unilever – the company that rebuffed a $143 billion offer from Kraft in 2017 – they would be up more than 40 percent, according to Eikon data. Putting their faith in 3G and Buffett has left Kraft’s original shareholders stuck with the crumbs.
Context News
Kraft Heinz shares fell by more than 28 percent on Feb. 22, the day after it reported a loss of $12.6 billion for the quarter ended Dec. 29, 2018.
The results were affected by a $15.4 billion non-cash impairment charge to write down goodwill and certain intangible assets, including the Kraft and Oscar Mayer trademarks.
The company also recorded a $25 million increase in costs in the latest quarter after receiving a subpoena from the U.S. Securities and Exchange Commission associated with its accounting policies for procurement.
Kraft Heinz is 27 percent owned by Berkshire Hathaway, the investment company of Warren Buffett, according to Eikon data. 3G Capital Management owns a further 22 percent of the stock.
Egg festoons the faces of Kraft Heinz’s two main investors, Berkshire Hathaway and 3G Capital. The market capitalization of the U.S. maker of Velveeta cheese – of which they own 49 percent – fell by nearly $17 billion on Friday. This came after the company reported poor earnings, cut the value of some of its brands and said U.S. authorities had hauled it over the coals on its accounting practices. Despite that, Warren Buffett’s firm and his private equity partners remain well fed.
Back in 2013, Buffett and 3G bought ketchup maker Heinz, putting in just over $8 billion of equity. When Heinz merged with Kraft in 2015, they added another $10 billion to fund a slug of cash for investors in the target. Since then, they’ve taken out half of the $10.9 billion in dividends paid on Kraft Heinz’s regular shares, based on company filings and Eikon data. And they still own nearly half a company with a market capitalization of $42 billion. That leaves them almost 50 percent better off, on paper.
Buffett got a little extra. Berkshire invested an extra $8 billion into Heinz in return for preference shares and warrants that paid out a cumulative $2.2 billion of dividends, according to Kraft Heinz’s public filings. Kraft Heinz bought back the preferred stock for $8.3 billion in 2016. That slice of the deal alone looks to have netted him just over a 30 percent profit over just three years.
That’s cold comfort for everyone else. Consider investors in Kraft who acquiesced to the Heinz deal in the first place. Their company was worth $36 billion before the market learned of the planned tie-up. They received a $10 billion special dividend, the other half of that $10.9 billion of dividends, and now hold shares worth $21 billion. Tot it up, and they’re barely better off than where they started.
Things might have been different. If a shareholder in Kraft had instead put their money into Unilever – the company that rebuffed a $143 billion offer from Kraft in 2017 – they would be up more than 40 percent, according to Eikon data. Putting their faith in 3G and Buffett has left Kraft’s original shareholders stuck with the crumbs.
Context News
Kraft Heinz shares fell by more than 28 percent on Feb. 22, the day after it reported a loss of $12.6 billion for the quarter ended Dec. 29, 2018.
The results were affected by a $15.4 billion non-cash impairment charge to write down goodwill and certain intangible assets, including the Kraft and Oscar Mayer trademarks.
The company also recorded a $25 million increase in costs in the latest quarter after receiving a subpoena from the U.S. Securities and Exchange Commission associated with its accounting policies for procurement.
Kraft Heinz is 27 percent owned by Berkshire Hathaway, the investment company of Warren Buffett, according to Eikon data. 3G Capital Management owns a further 22 percent of the stock.
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