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
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.
Today’s Market = 1999 Capex + 2008 Credit
I wrote in the past that the AI rollout feels a lot like déjà vu of the 1999 telecom bubble. Today's AI bubble has elements of both the 1999 overinvestment in internet infrastructure and the 2008 collapse of financial instruments that infected the banking and financial system.
You Don’t Need to Be an Expert to Hire One. You Need a Tunaman.
I interview corporate executives for a living. I have spent nearly three decades analyzing businesses and managing other people's savings. And yet, when my wife and I decided to remodel our house, I felt completely naked.
comments
0