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.
Related Articles
Why I No Longer Mind Losing an Argument
Reflecting on my experience with Dale Carnegie's book, I share how it transformed my approach to criticism and debate, and why I no longer mind losing an argument.
How do I get any research done since I travel a lot?
I get asked at times: How do I get any research done since I travel a lot? To answer this question, I need to explain how we do research.
The Growing Pains of Maturity
Many times, we bought because they were in their “junior year”; this is what made them undervalued. Our research led us to the conclusion that their difficulties were transitory and that as they matured the market would revalue them.
What is the Value of Apple? How do we evaluate risk?
Today I will share the Q&A section of the letter. Every time I am almost finished with the client letter, I ask clients to send me any questions they have about their portfolio or other topics. I answer these questions in the Q&A section.
