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.
KHC is an excellent stock to do options on them, but it has been in down trend mid 2017, giving rounding top and H&S at after highs, perhaps this will be end of down move after few weeks?
You are correct, as an original shareholder of Kraft, I ended up with very little gain. Regret I followed Uncle Buffett and bought into KHC instead of taking my $ and ran. To a retail like me now looking back, the 3G business model requires them to keep buying or the profit will eventually tank. There is no growth in their existing business after "cost cutting", growth comes from keep buying + accounting gimmicks. Reminds me of the go-go years of conglomerate - ITT, Litton.... Perhaps old wine in a new bottle? I should have looked under the hood more carefully.
Once again “The Oracle of Omaha” nets a windfall while the ordinary investor gets nothing. Hmmmm where have I heard that before? Oh right, pretty much every investment Buffett has made in the last 20 years, especially the 2008 collapse with his obscene “Preferred” deal with the banks and financials. Guy fleeced it while ordinary investors are barely scraping even. But the liberal media loves him so let’s all pretend he doesn’t get “can’t lose” deals that nobody else gets.
Looks like a BTFD deal now. You just wait and see...Artificial colors and flavors will be retro in 20 years, and people are going to crave them. Millennials will wake up one day in the future and go "WTF, why did we spend all that money on "organic and GMO-Free? It didn't kill our grandparents any younger than we're dying now!" *tsk*