(BRK.A), (BRK.B)
When activist investor Bill Ackman took a $5.5 billion stake in Mondelēz International, Inc., everyone started looking at Kraft Heinz as a potential buyer for the snack food company. After all, Berkshire and 3G Capital have been busy wringing cost savings out of the newly united food giant, and it could make sense to add Mondelēz, which split off from Kraft in October of 2012. Mondelēz was supposed to be the more exciting part of the split, but its performance since then has been lackluster.
So, is Warren Buffett interested? Not in the short term, according to his comments Monday during an appearance on CNBC.
“Well, I will listen to anything my friends at 3G want to do, but with Kraft Heinz we have our work cut out for us for a couple of years,” Buffett said “I think it is quite unlikely, you never want to say anything is impossible, but I think it is quite unlikely that Kraft Heinz would be doing a big acquisition in the next couple of years. Somewhere down the road I wouldn’t be surprised. But, it also would have to make sense financially, and frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all of the work needed at Kraft Heinz. A lot of the companies are selling at prices that sort of reflect improvements in them that people sort of what has been happening at Kraft Heinz, and believe me this is not easy.”
Placing the Cart Before the Horse
According to Buffett, now that 3G proved it could wring savings out of Heinz, the other big food manufacturers became priced such that the savings is already factored into their share price.
“Well, it would be hard for us to make a deal that makes sense, yeah. But who knows what happens down the line, but if you look at Kellogg or Campbell’s Soup or Mondelēz, they’re prices to some extent the market has put into those companies prices that reflect an expectation Kraft Heinz type margins are possible, and that may be the case, but I have not seen it elsewhere.”
So, while the door’s open a crack, Buffett’s in no rush to go through it.
© 2015 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.