Berkshire Hathaway buying Heinz is unlike any deal Buffett has ever done. In his past deals he was always a passive owner – he let existing management continue to run the company. In this case 3G, a private equity firm that has done terrific turnarounds in the past, will be the new management. They are putting in $1 billion of capital for half of ownership, but also a lot of sweat capital. On the surface Buffett is paying 20 times earnings, a fairly high multiple even for this high-quality business, but 3G involvement will likely elevate the earnings power of Heinz significantly over time. So this is a classic Buffett deal in one respect: Buffett is saying, I’m willing to pay a premium for a quality business that has long-term pricing power. (Heinz scores great on both counts). Buffett is willing to pay a premium for it, but this time the premium is less than it appears on the surface.
Please read the following important disclosure here.
New to investing?
Explore these valuable guides to get started.
Related Articles
The AI Hangover Is Coming. The Pandemic Already Showed Us How It Ends.
We don’t have to go decades back to find an analogy. Just look back a few years, to the pandemic. We all lived through it, most of us in sweatpants. And it offers a near-perfect preview of what is about to happen in AI.
Your Sophist Filter: On CEOs, Cynics, and the Voice in Your Head
A great speaker can bend logic with emotions and exert undue influence on your decision making. The better someone speaks, the more discriminating your Sophist filter needs to be.
Depressing Reasons Why I Am Bullish On Gold (part 2)
Here is what changed my mind. Not something about gold, but many things about the dollar. The US dollar is the world's reserve currency. It has had a well-deserved place since WWII, and that rested on three things: the largest, steadiest, most diverse economy; a politically stable democracy; the best military.
Narrative Change (part 1)
Narrative change is a reversal of mass behavior. Economics and stock market valuation are governed by soft laws, but the reality bent by human behavior can disagree with these soft laws for much longer than rational actors would expect, or stay solvent. The change, going from euphoria to despair, is a change in narrative.
comments
0