Greg Abel took over as CEO of Berkshire Hathaway (BRK.A 0.72%) (BRK.B 0.99%) for longtime CEO Warren Buffett just a few weeks ago. And already, there are indications that Abel has made his first major move as the head of the conglomerate. At the same time, he may be addressing what many believe may have been one of Buffett's biggest missteps in recent years.
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According to an SEC document filed Tuesday, it appears that Abel and Berkshire Hathaway may be dumping Kraft Heinz (KHC +2.11%) -- the ninth-largest holding in the conglomerate's $267 billion portfolio.
Berkshire Hathaway owns about 325 million shares of Kraft Heinz, amounting to about an $8.5 billion stake, which makes up roughly 3.2% of the Berkshire portfolio. Also, Berkshire is the largest shareholder in Kraft Heinz, owning 27.5% of the shares.
NASDAQ: KHC
Key Data Points
The 8-K filing by Kraft Heinz was to note the potential resale by Berkshire Hathaway of up to 325,442,152 shares of Kraft Heinz common stock -- which would be Berkshire's entire position. Kraft Heinz made this filing pursuant to contractual terms that it would register for potential resale by the "selling stockholder."
It notes that this does not necessarily mean the selling stockholder will choose to sell any shares; it just provides the legal mechanism to do so. But it seems likely, all things considered.
Kraft Heinz has been on a long, strange trip since 2015
There is a long history between Berkshire Hathaway and Kraft Heinz. In fact, when Kraft Heinz merged in 2015, Buffett and Berkshire Hathaway were the architects of the deal. Berkshire owned HJ Heinz, which was a private company, and it merged with Kraft in a $46 billion deal to form Kraft Heinz.
NYSE: BRK.B
Key Data Points
The merger was pretty much doomed from the start, for a variety of reasons that I won't dive into, but much has been written about it. Berkshire's partner in the merger, 3G Capital, began shedding its 16% stake years ago and completely sold out of it in late 2023. But Berkshire Hathaway held on, hoping, perhaps, for a turnaround.
The stock price has pretty much been in free fall since 2015, dropping from over $90 per share in 2017 to its current $22.40 per-share price. That works out to a 10-year average annualized return of about -11% per year for Kraft Heinz stock.
The last straw for Berkshire
The final straw for Berkshire Hathaway likely came last September when Kraft Heinz announced it was splitting back up -- going back to two separate public companies, kind of like before the merger, although this time, both will be public.
This did not sit well with Buffett, who noted his disappointment with the split.
While it may be a tough pill to swallow, it seems like a no-brainer (to double down on the idioms). It seems to be long past the time for Berkshire Hathaway to move on from Kraft Heinz, certainly now that the company is splitting anyway, and invest that capital somewhere else.
Stay tuned for Berkshire Hathaway's next earnings report on Feb. 23 for any more details on this potential move, or any others, as Abel settles in as CEO.
