HNZ/Buffett. I believe I closed my Heinz position last year @~low $50's. Looking at Heinz again now, I just do not see how it is an attractive value (value stock) at $72. In past, seems like Mr. Buffett was willing to go 12x earnings (for Kraft, et. al.), but not more (He passed on DEO). Although the company is #1 in ketchup in USA, I just wonder if the growing Hispanic market prefers something more piquant. I don't necessarily see where there's a lot of emerging market growth with ketchup, anyway. P/e now 19x-23x (not sure) seems awfully rich to me for this food company.
In one way it seems like the attraction is the financing terms Berkshire gets. In return for shared control of Heinz, market cap ~= enterprise value ~= $23B, "Berkshire Berkshire and 3G are each putting in more than $4 billion in common equity. Berkshire is also helping finance the deal by buying $8 billion in preferred stock, an investment that will pay a dividend of 9%—or more than $700 million a year." (WSJ report)
I mention this transaction because in another way, it's as if Mr. Buffett seems to have decided to pay up in this market for assets he wants. Other than the great financing of the deal, which is the crux imo --- he seems to be stretching, maybe loosening his criteria, in order to deploy his cash hoard/cash flow. |
