BUFFETT OVERPAID
Billionaire admits that Kraft Heinz isn’t worth what he paid for it, but he has no plans to sell,
Warren Buffett said Berkshire Hathaway Inc. and 3G Capital overpaid in 2015 when they helped Heinz buy Kraft to form Kraft Heinz Co., but he has no plans to sell.
The acknowledgment, made during a CNBC interview Monday, followed a disclosure Saturday that Kraft Heinz contributed a $2.7 billion loss to Berkshire Hathaway in 2018. Kraft Heinz last week wrote down the value of some of its biggest brands, disclosed an investigation by federal securities reg- ulators and slashed its dividend.
Mr. Buffett’s Berkshire Hathaway owns 27% of Kraft Heinz.
“The interesting thing about Kraft Heinz is it’s still a wonderful business,” Mr. Buffett said. But “the business does not earn more because you pay more for it.”
Berkshire and Brazilian private-equity firm 3G Capital partnered in 2013 to buy Heinz and then financed Heinz’s 2015 merger with Kraft. Mr. Buffett on CNBC said Berkshire Hathaway doesn’t plan to change its ownership stake in Kraft Heinz despite the struggles.
“We don’t pull the plug…It isn’t our style,” he said. But he said he also wouldn’t buy more Kraft Heinz, even after its share prices slumped last week, because “it isn’t worth as much.”
Mr. Buffett said on CNBC that Kraft Heinz’s recent struggles were the result of a loss of bargaining power with retailers and he compared Kraft Heinz with Costco Wholesale Corp.’s Kirkland brand to demonstrate how the retail environment is changing. Kraft Heinz traces many of its brands back to the 19th century, while Kirkland launched in recent decades. But Kirkland’s sales exceeded Kraft Heinz’s last year, he said.
“So here they are, 100 years plus tons of advertising, built into people’s habits and everything else, and now Kirkland, a private label brand comes along with only 750 outlets, does 50% more business,” Mr. Buffett said. Berkshire Hathaway Inc. owns about 1% of Costco, according to FactSet.
Mr. Buffett, a longtime Democrat, also said he would support Michael Bloomberg if he announced a presidential run. Mr. Buffett campaigned for Hillary Clinton in 2016. Of Mr. Bloomberg, Mr. Buffett said, “I think he knows how to run things.…He understands people, he understands the market system and he understands the problems of people” who don’t benefit from the market system.
Mr. Buffett said it would be a mistake for Howard Schultz to run as an independent candidate, because he would take votes away from a Democratic candidate.
“I hope no third-party candidate runs,” he said.