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In 2013, Berkshire Hathaway, led by billionaire Warren Buffett and ThreeG Capital, led by Brazilian investor George Lehman, took part in the Heinz acquisition for $ 23 billion, two years later, they decided to merge their activities with Kraft Foods. "In a case costing $ 10 billion.
The merger resulted in the birth of one of the largest food companies in the world: at the time, Berkshire's stake in the new entity, Kraft Heinz, rose to 325 million shares, making it the largest one of the largest holdings in American society.
At first, Kraft Heinz appeared to be a winning bet and an exceptional opportunity: the stock went from about $ 73 to $ 97 in February 2017, but it has been on a downward trajectory and is currently trading at nearly $ 35.
Although Buffett has confirmed his intention not to sell his stake in Kraft Heinz, he has made controversial comments about the future of the company.
Drain of value and profits
– Buffett said in an interview with CNBC following the discovery of Kraft Heinz's $ 2.7 billion contribution to Berkshire's losses in 2018, the latter holding 27% of the food company, making it the largest shareholder.
– About a week ago, Berkshire's chief executive revealed that some of the biggest brands in her portfolio had been devalued by more than $ 15 billion, as well as federal regulators in the company's practices, announcing a reduction dividends.
"We are not retiring from Kraft Heinz, which remains a good deal," Buffett said at the meeting. But we were very optimistic about the value of their brands when we invested in 2015. Companies do not earn more because you paid more.
– The American billionaire said he did not intend to buy more shares than he did not own, but instead saw other regions invest more money.
– The sharp drop in Kraft Heinz's overall performance will be a real test of Buffett's 3G relationship, especially as some Berkshire shareholders are unhappy with their partnership, the Wall Street Journal said in a report.
Concerns about the partnership with the "Three G"
Kramer said Kraft could once again cut dividends, adding that investors have previously appreciated cost-cutting strategies and Warren Buffett's share in the company's shareholders, but lamented the decline in value and the decline prices.
"I did not understand why Buffett had cooperated with 3G, but I think the only solution now is to support them," says asset manager Paul Luntzer (Berkshire shareholder). Make the necessary adjustments and help "Kraft".
– Less than two years after the merger, Kraft Heinz's workforce has been cut by 20 percent and expenses reduced by 40 percent, but Naqada said the 3G strategy was far from growth, according to Forbes. "He said.
Unsurprisingly, the company's sales declined for six consecutive quarters: on February 22, Kraft Heinz lost about 30% on opening, losing a market value of $ 16 billion.
The biggest threat: consumer tastes
– A merger between Heinz and Kraft was supposed to produce a giant food and beverage company that could compete in a world where consumer tastes were changing, but were affected by a decline in demand for processed foods according to a report by Gurgukas.
– Since then, although the new company has reduced its expenses to generate more profits and distribute them to shareholders, sales have remained stable and are now struggling to grow. According to analysts, the growth of a business of this magnitude is both a survival.
– Kraft Heinz has a broad portfolio of well-known brands that provide cash flow in its vaults, but focus on the efficiency of earnings rather than offering new products that will delight consumers.
According to Kramer, Kraft has a chance to start a new life, but costs a company that tends to reduce costs: many of its products are obsolete and many people of the millennium prefer to buy fresh and organic food.
The company must therefore face a hostile triad: it must increase its expenses to support its brands, which coincides with the rise in the cost of raw materials (which officials have repeatedly pointed out during the Business Results Conference).
Buffett said in 2015 that the merger was his favorite category, with the consolidation of two global institutions and creating value for shareholders, but the sudden drop in the value of the company confirms that even the philosophy of an investor forefront can be subject to abrupt changes in consumer attitudes.
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