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Friday, February 15, 2013

NEWS.COM.AU: Why has Warren Buffett bought Heinz?




HE'S known as the most successful investor of the 20th century, he was ranked the wealthiest person in 2008 and third wealthiest in 2011.
Warren Buffett, the Sage of Omaha is worth about $46 billion and he has the Midas touch – when he makes an investment everybody wants to know why: and his latest investment is in Heinz.

The billionaire has teamed up with Brazilian-led 3G Capital (owned by Brazil’s richest man, Jorge Lemann) to take over the US ketchup maker Heinz in a deal worth $28 billion. The two billionaires will go 50-50 on the deal.

It's the fourth largest food and beverage acquisition of all time, and the largest food acquisition ever.

Why Beans?
Mr Buffett's Berkshire Hathaway has been seeking a big deal to put its $48 billion cash pile to work and Buffett told CNBC that he is "ready for another elephant so if you see one walking by just tell me".

"Heinz is our kind of company with fantastic brands," he said. "It's my kind of deal and it's my kind of partner."

In a statement announcing the deal Mr Buffett commended Heinz products as "great tasting" - but what is the reason for Mr Buffett opting into the $28 billion deal?

Firstly the Wizard of Omaha told CNBC that the idea wasn't his but was 3G Capital's founder, Jorge Paulo Lemann.

Heinz has had steady growth, it was barely hurt during the recession, it pays out more than $600m a year in dividends and is one of the world's leading packaged foods company.

The company employs about 32,000 worldwide and its products are enjoying bestselling status in more than 50 countries.

Snack foods meet emerging markets
Heinz has made strong inroads into Asia and this is where Mr Buffett sees massive potential.

"He doesn't only go for the start-up businesses," said Juliana Roadley of Commsec. "If he sees something that has a good product range and avenues into new areas - he can see that Heinz is one of those growing businesses, especially into Asia and he’s looking to get into that area."

"He works really hard to find these companies and they [Berkshire Hathaway] do like investing into food."

Some of Berkshire Hathaway's other food investments include ice-cream company Dairy Queen and chocolate company See's Candies. Buffett is the largest investor in Coca-Cola and he’s also got a stake in Kraft Foods as well.

The Heinz deal is typical of the Buffett investment strategy: betting on snack foods, investing in companies with great management, household brand names and that have a strong competitive advantage.

"Heinz has strong, sustainable growth potential based on high-quality standards, continuous innovation, excellent management and great-tasting products," Buffett said in a statement.

Ms Roadley said that Mr Buffett has long-term views of where economies are going and he buys the appropriate stocks to fit those views.

“He realises that as people get more wealthy in Asia and the Far East they’re going to increase their styles of foods and amounts they consume," said Ms Roadley.

If Mr Buffett is to continue with his philosophy: "Rule number one: never lose money; rule number two: don't forget rule number one,” and his stellar investment record is to remain in tact - it might be a fair bet to say his investment in Heinz is a good deal.

With $11.6 billion in global sales last year, Heinz is one of the largest US food companies.

Heinz said shareholders would receive $72.50 a share from Berkshire and 3G, a 20 per cent premium to Wednesday’s closing share price.

Shares in the group were trading at the offer price at lunchtime in New York.

Shares of other food companies in the sector also rose amid speculation that the Heinz deal could trigger wave of mergers.



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