What does Warren Buffett see in Heinz?

The bargain-hunting investor is buying shares trading at all-time highs.

By Jonathan Berr Feb 14, 2013 11:50AM
Warren Buffett, history's greatest investor, has made billions finding value in companies that Wall Street has overlooked. H.J. Heinz (HNZ), which Buffett's Berkshire Hathaway (BRK.A) and 3G Capital Thursday agreed to buy for $23 billion, is a case in point.

Heinz, best-known for making ketchup, was hurt when consumers turned to cheaper, private-label packaged foods as the economy began to sour. During the latest quarter, the Pittsburgh company reported that North American consumer product sales rose 0.1% to $795 million while operating income plunged 5.7% to $190 million on higher marketing expenses. CEO William Johnson saw his total compensation drop 8% to $14.4 million in 2012, according to The Associated Press.

Billionaire Nelson Pelz won a seat on the company's board in 2006 following a proxy fight and had been pressuring the company to sell assets to boost its share price. One area where Heinz listened to the activist investor was in making ketchup packets easier to open. The new packet design, unveiled in 2011, was such a hit that The Wall Street Journal reported that some customers were hoarding them.

Heinz's businesses have shown pockets of strength in the food service industry and in emerging markets. They also have iconic brands that Buffett has liked. Heinz Tomato Ketchup was first introduced in 1876. The company also sells Ore-Ida potatoes and Classico pasta sauce.File photo of Warren Buffett on the NBC News' 'Today' show on November 27, 2012 ( Peter Kramer/NBC/NBC NewsWire via Getty Images) 

Evidently, Buffett and 3G Capital like what they see. According to Bloomberg, they are paying about 14.6 times earnings before interest, taxes, depreciation and amortization, well above the 7.6 times multiple paid in similar deals. Shares of other food companies, such as Campbell Soup (CPB), are rising as well.

Buffett has made other bets in consumer products, with holdings in Coca-Cola (KO), Johnson & Johnson (JNJ) and Kraft Foods (KRFT). He helped Mars Inc. in its $28 billion takeover of chewing gum maker Wm. Wrigley Jr.

Based in Brazil, 3G Capital, is no stranger to the food business either and will manage the operations of Heinz when the deal closes. It acquired Burger King (BKW) in 2010 for $3.3 billion and took the fast food chain public last year.  

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.


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19Comments
Feb 14, 2013 1:37PM
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MSN are you kidding? I tried to read this article and I got blasted out of my seat with your automatic video here at my desk! Are you kidding? I would label this page "not safe for work." That's just low class of you. If I want to watch the video, let me click play. And there was no stop control until the advertisement was over!

I have enjoyed your site a long time but will switch if this crap continues.

Feb 14, 2013 12:21PM
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Cheaper brands are often inferior in quality, taste, and even visual appeal.
Feb 14, 2013 1:32PM
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Maybe Buffet knows that Americans will all be eating pizza and tacos after Obama gets through destroying our economy. Those items will be all older Americans will be able to afford. 
Feb 14, 2013 12:40PM
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MAYBE WARREN SEES A CHANCE TO HELP A LIBERAL BUDDY, JOHN KERRY.  FUNNY HOW THIS CAME ABOUT AFTER HE BECAME SECRETARY OF STATE (SOS!).  NOW KERRY IS WORTH MORE THAN 200 MILLION OR WHATEVER THE TRUE AMOUNT.   ANOTHER RICH GUY SO CONCERNED ABOUT THE POOR.

 

MAYBE WARREN WILL GIVE SOME SHARES TO BARRACK ALSO

Feb 14, 2013 12:50PM
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maybe if the fed raises the min wage, then the fast food chains will then sell condements instead of them being free. hhmmmm?
Feb 14, 2013 5:58PM
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Hey, just one liberal helping out another.

Keep the wealth in the greedy party.

Feb 15, 2013 12:32PM
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I guess it's because I've never earned $100K per year... I take full responsibility for that. I guess that is one reason I don't understand CEO's making tens of millions per year....So naturally when I see companies and shareholders bitching about paying their hard working employees, the ones that are ultimately responsible for their multi million dollar salaries.....WOW  I mean some of these execs make more in one year than any of these hard working employees will in a lifetime. Gee I wonder if any of these people ever think "I wonder how the economy got sooo bad" HELLO  Talk about having more dollars than sense.......
Feb 14, 2013 1:53PM
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The answer to your question (title) is because he is a friend of his Liberal Progressive friend John Kerry and his boy needs all the help he can.  Sick...
Feb 14, 2013 3:45PM
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Remember everyone the elite have sold their souls to have all these worldly riches.  Someone forgot to tell them they dont take it with them.  Talk about fools fortune.
Feb 14, 2013 6:21PM
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He wants to ketchup with the rest of the market.  Har har. . . .
Feb 15, 2013 5:04PM
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I don't care how much Heinz ketchup costs, it is the only ketchup I will ever eat.  You go Warren!
Feb 14, 2013 11:23PM
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NEXT WILL BE THE PURCHASE OF A MUSTARD MAKER THAN HE WILL HAVE WORLD DOMINATION OF ALL HOT DOG AND HAMBURGER OUTLETS
Feb 14, 2013 3:43PM
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LOL, the funny part is when Jesus comes back very.........and i mean very soon the rich will lose everything.  So, i tell just the average American just enjoy you life and praise the Father in Heaven because in the in you'll be the winner with eternal riches not this fools gold on earth.
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