Buffett Stocks In Focus: Kraft Heinz

Warren Buffett is one of the most famous – and most successful –investors of all time.

As the chairman and Chief Executive Officer of Berkshire Hathaway (BRK-A) (BRK-B), Buffett has an investment track record that is unmatched.

Investors are fortunate that Buffett’s investment portfolio is made available to the public through Berkshire Hathaway’s 13F filings with the Security and Exchange commission, filed quarterly.

You can see Warren Buffett’s Top 20 high yield dividend stocks analyzed here.

Buffett’s single largest holding for Berkshire Hathaway is Kraft Heinz (KHC). 19.5% of Berkshire’s investment portfolio is held in this company. The Oracle of Omaha owns 325,634,818 shares of Kraft Heinz worth approximately $31 billion.

Kraft Heinz is a relatively new holding for Buffett, as Berkshire Hathaway has only owned shares since 3Q2015 (before that, Buffett owned Heinz since February 2013). Buffett did not report any buying of selling of Kraft Heinz stock in the quarter ending December 31, 2016.

This article will analyze the investment prospects of Kraft Heinz in detail.

Business Overview

Kraft Heinz was created on July 2, 2015 when the merger between Kraft Foods Group and H.J. Heinz Holding Corporation was finalized.

The merger brought together an elite group of food brands under one roof. Some of these brands can be seen below.

Source: Kraft Heinz Merger Presentation, slide 3

The transaction gave the pro-forma company a leading position for a number of products and geographies.

The mechanics behind the transaction were quite simple. Kraft shareholders received one share of Kraft Heinz and a $16.50 cash payment for every KRFT share they owned.

Source: Kraft Heinz Merger Presentation, slide 6

Before the merger, Heinz was privately owned by Berkshire Hathaway and 3G Capital. Together, the two holding companies paid a total of $10 billion to Kraft shareholders, and ended up owning 51% of the pro-forma company.

The importance of Berkshire Hathaway’s role in partnering with 3G Capital to finance this merger cannot be understated. The following slide outlines some perceived strong points of each firm that were outlined in the merger announcement presentation.

Source: Kraft Heinz Merger Presentation, slide 10

Buffett in particular seemed excited about the Kraft-Heinz acquisition, writing the following in Berkshire’s 2015 Annual Report:

“The new company has annual sales of $27 billion and can supply you Heinz ketchup or mustard to go with your Oscar Mayer hot dogs that come from the Kraft side. Add a Coke, and you will be enjoying my favorite meal.”

In his typical Buffett-esque way of describing complicated affairs in a very digestible manner, Buffett wrote the following about the benefits of partnering with 3G in this transaction (also from Berkshire’s 2015 Annual Report):