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Buffett's Got Heinz: Now Where's That Ham Sandwich?

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Warren Buffett has famously said that Coca-Cola could be run by a ham sandwich. With a stake of close to $15 billion, Buffett's Berkshire Hathaway  (NYSE: BRK-A  ) (NYSE: BRK-B  ) is far and away the largest Coke shareholder. Obviously, Buffett digs companies that can resort to a cold-cut CEO if necessary.

H.J. Heinz  (UNKNOWN: HNZ.DL  ) is a company in just that mold, and it's also now a company that Berkshire and Buffett have a huge stake in.

The "ham sandwich CEO" has a fan in Buffett, because he has historically had a very hands-off approach when it comes to the day-to-day operations of the companies that Berkshire owns. He either buys them with great management intact, looks for those ham-sandwich companies, or targets both at once. 

I'm no expert on Heinz's current CEO Bill Johnson, but based on both the company's and stock's performance over a very difficult period in the markets and global economy, I feel safe concluding he's no ham sandwich -- even if his company could be run by one if needed. He may not be itching to go anywhere, either. On the conference call discussing the deal, he certainly didn't sound ready to retire.

Bringing out the ax?
Whether we're talking about Johnson, a ham sandwich, or anyone else running Heinz, early chatter has floated the possibility that the involvement of 3G Capital suggests that massive cost-cutting could be ahead at Heinz. Media questions from the post-announcement conference call also centered around the possibility that the corporate paring knife and pink slips would be involved post-buyout.

This certainly could be in the cards. However, I would be very surprised if we saw this happen. Buffett has spent decades carefully crafting a persona -- that down-homey, Coke-drinking, hamburger eating image that we all know so well. Part of that public-facing Buffett is also the idea that he buys companies because he likes them as is, and wants to own them as is

This is a very important point. Companies sell themselves to Berkshire for this reason. Good companies sell themselves to Berkshire for this reason. Heck, it wouldn't shock me one bit if Heinz agreeing to the buyout had a lot to do with this. Doing an about-face with Heinz, and tarnishing that image, could make it tougher for Buffett to convince companies to sell out to Berkshire in the future. And that's a real business consequence that Buffett will want to avoid.

3G Capital will be tasked with overseeing Heinz after the acquisition, but make no mistake -- nobody is going to let Buffett off the hook if 3G does pull out the buzz saw. 

Mayo or mustard?
3G Capital became a familiar name to many U.S. investors after it took Burger King private in late 2010. The investor -- after significant restructuring -- then turned around and took the company public again less than two years later. While this may have been a solid investment for 3G, the partnering up with Buffett to buy Heinz would suggest a very different investment approach this time around. There's little doubt in my mind that Buffett will want Berkshire to own Heinz as long as it's still able to keep churning out that delectable ketchup (not to mention other Heinz goodies).

In other words, if one of the two investors here is set to make a break from the model of its other recent investments, I'm betting it's 3G, not Berkshire.

With that settled ... ham sandwiches anyone?

Much more to Buffett than Heinz
Warren Buffett's long track record of success has made him one of the best investors of all time. With the Buffett at the helm, Berkshire Hathaway has grown book value per share at a compounded annual rate of 19.8% for nearly 50 years! Despite an incredible historical track record, investors have to understand the key issues to watch moving forward. To help investors, The Fool's resident Berkshire Hathaway expert Joe Magyer has created this 
premium research report on the company. Inside you'll receive ongoing updates as key news hits, as well as reasons to both buy and sell the stock. Claim a copy by clicking here now.

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Related Tickers

9/27/2016 4:00 PM
BRK-A $217960.00 Up +1800.00 +0.83%
Berkshire Hathaway… CAPS Rating: *****
BRK-B $145.34 Up +1.16 +0.80%
Berkshire Hathaway… CAPS Rating: *****
HNZ.DL $72.49 Down +0.00 +0.00%
H.J. Heinz Company CAPS Rating: ****