No. of Recommendations: 2
“ Kraft Heinz Stock Could See More Pressure If Berkshire Sheds Stake
Berkshire Hathaway’s new CEO Greg Abel may be looking to clear out losing investments, including potentially selling all or part of its 27% stake in Kraft Heinz rather than take another write-down on the money-losing holding. Berkshire indicated the move in a filing but didn’t respond to Barron’s request for comment.
Berkshire owns 325.4 million Kraft Heinz shares valued at around $7 billion. Under then-CEO Warren Buffett, Berkshire received them as part of a merger of Kraft and Heinz in 2015. The filing said it may “offer to sell from time to time” shares from that stake.
It could be that Buffett wasn’t pleased about Kraft Heinz’ plan to split into two companies, a move that would create a higher-growth company and a slower-growth one. He saw little point in a split reversing their merger and increasing corporate costs because of duplicated functions.
Brands include Kraft Mac and Cheese, Heinz ketchup and sauces, and Philadelphia cream cheese, a portfolio that could be considered a disadvantage as more consumers pursue fresh foods, niche brands, and private-label products. But Heinz ketchup and Philadelphia cream cheese are solidly profitable brands.
Kraft Heinz has been a poor investment for Berkshire, which owned about half of Heinz before the merger. It had taken the company private with 3G, the investment firm founded in Brazil, in 2013. Buffett helped engineer the merger of Kraft and Heinz. 3G has exited what once was a sizable stake in Kraft Heinz.
What’s Next: If Berkshire does start selling, Kraft Heinz stock could come under additional pressure, after hitting a 52-week low on Wednesday. Berkshire will have to disclose a transaction within two business days. Kraft Heinz is expected to split the company in the second half of this year.
—Andrew Bary and Janet H. Cho“
