Kraft-Heinz: Is This Really A Buffett-Type Of Deal?

When I think of Warren Buffett, I think of a guy who likes to own stakes in iconic brands which throw off reliable amounts of cash flow. I also think of a guy who likes to watch his ownership stakes increase:  as his portfolio companies buyback their shares, his percentage ownership of those companies increases. Buffett mentioned as much in his recent Berkshire Hathaway shareholder letter.

Something else Buffett always mentions is how he prefers to acquire companies using cash rather than using Berkshire Stock (BRK – no positions) as currency – because he thinks that BRK usually offers more value than the company he is acquiring: “We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give.”

So it surprised me to see that in today’s acquisition of Kraft Foods (KRFT), Heinz equity was being used as currency. It’s not quite that simple, so let’s take a quick look at the situation. In Feburary of 2013, Warren Buffett and 3G capital acquired Heinz in a deal worth $ 28B (including debt). Buffett and 3G each bought 1/2 of the equity, and Buffett also bought a preferred equity stake that paid him a fat dividend.

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