Berkshire Hathaway, Warren Buffet’s multinational conglomerate is set to have a share of the mega-merger between H.J. Heinz and Kraft Food Group. Berkshire and Brazil’s 3G own Heinz.
Buffet To Back Mega-Merger Between Heinz and Kraft Food
The deal, which was announced March 24, will see Kraft shareholders take a 49% stake in the combined company and they will get $16.50 a share in cash dividends. This special dividend will amount to about $10 billion, an amount that will be funded by Berkshire Hathaway and 3G in the form of an equity contribution.
Speaking to CNBC, Buffet said that Berkshire would take a $9.5 billion stake in the merger. “I am delighted to play a part in merging these two successful companies and their iconic brands together.”
He added, “This is my type of transaction, bringing together two world-class companies and delivering shareholder value. I am excited about the opportunities brought by this new combined company.”
Joint owners in Berkshire, 3G and Heinz will consequently own shares in the world’s fifth largest manufacturer of food and beverages. Berkshire owns 0.03% stake in Kraft.
According to David Turner, a Mintel analyst, “3G has squeezed a lot out of Heinz and it is set to do the same at Kraft. When Buffet invests in an industry, it is a good indication that sector could be ready for major acquisitions. This move could trigger other opportunities.”
Buffet earlier announced to his shareholders, “Before venturing into new investments, we first look at adding onto old ones. It may well pay to repeat the process, if a business was once attractive enough to buy.”
Berkshire has a long list of subsidiary companies that it has invested in including companies in the car insurance sector and brick industry to having stakes in diamond industry. Some of his top investments include PetroChina in which Berkshire has a 1.3% stake, which it acquired for an estimated $488 million. In 2007, Buffet sold the Chinese company and made a profit of $3.6 billion.
Wells Fargo & Co. is also one of Buffet’s largest investments. He invested $290 million in the company in 1990 when shares were just $2.40; today, Wells Fargo shares trade at about $55.
However, the investment guru has made some mistakes, for example, Buffet referred to Berkshire’s decision to quadruple its stake in ConocoPhillips at the peak of oil and gas prices as a major mistake. Even then, Buffet is still a robust investor with Berkshire earning as much as $840 million in a day.
On his decision to invest in the Kraft-Heinz merger, Buffet said, “The inescapable truth is that over the last fifty years, it has been much safer to invest in a diverse collection of American businesses than in securities, whose values are usually tied to the U.S. dollar.”
Soon after the merger announcements were made, Kraft shares rallied 43% in the early hours of trading to trade at $87.88 in New York, giving the company an estimated valuation of about $50 billion. This is the largest intraday gain for Kraft since it broke up with Mondelez International Inc. over two years ago,
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