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The 3 Brazilian Investors That Are Better Than Warren Buffett

By Alex Dumortier, CFA – Sep 17, 2015 at 2:13PM

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How three Brazilian investors assembled the world's biggest brewer.

It's "Fed Thursday," and the Dow Jones Industrial Average (^DJI -0.15%) and the benchmark S&P 500 (^GSPC -0.60%) index are up 0.39% and 0.04%, respectively, at 2 p.m. EDT. However, despite the overwhelming focus on the Fed today, there are more meaningful things going on in the world of business and finance.

From $50 million to $42 billion in just over a quarter-century -- a stunning 29% annualized return. That isn't Warren Buffett's track record at Berkshire Hathaway, but it's little wonder Bufett likes to partner with the owner-operators behind that performance.

For business-focused investors, today's biggest story remains the one at the top of the Financial Times' front page: "AB InBev eyes SABMiller to create $275bn 'megabrewer.'"

The magnitude of the figures involved is an indication of the seemingly limitless ambition of three Brazilian investors and their investment vehicle, 3G Capital. (One of them, Jorge Paulo Lemann, is already the wealthiest man in Brazil.)

3G Capital was already behind the July merger of H.J. Heinz and Kraft Foods to form the Kraft Heinz Company. The $53 billion deal was the largest in the consumer sector for several years. Berkshire Hathaway participated in the transaction, having jointly acquired Heinz with 3G in 2013.

The roots of the potential megamerger between AB InBev and SAB Miller go back to 1989, the year in which three of 3G Capital's partners, Jorge Paulo Lemann, Carlos Alberto Sicupira, and Marcel Telles, acquired a controlling interest in one of Brazil's oldest brewers, Companhia Cervejaria Brahma, for $50 million.

Brahma was then merged with another one of Brazil's oldest brewers, Antarctica, to form Ambev. Ambev still exists and is majority-owned by AB InBev.

Numerous deals followed to facilitate Ambev's expansion throughout Latin America, but two deals in particular were instrumental in creating a global beer giant: The 2004 combination with Belgian brewer Interbrew to form InBev, and the 2008 acquisition of Anheuser-Busch to create Anheuser Busch InBev ("AB InBev").

When the dust had settled, 3G Capital's partners ended up with a 22.7% stake in AB InBev worth roughly $42 billion at today's share price.

How did they manage this extraordinary feat of value creation? Unlike Buffett, they are not passive investors -- they can and will supply management.

That management instills an extremely effective business culture based on relentless competition, ownership, and frugality, as exemplified in three of AB InBev's "10 Principles":

We are never completely satisfied with our results, which are the fuel of our company. Focus and zero-complacency guarantee lasting competitive advantage.

We are a company of owners. Owners take results personally.

We manage our costs tightly to free up resources that will support sustainable and profitable top line growth.

If you get the opportunity to partner with owner-operators of 3G Capital's caliber at the right price, it's a "no-brainer" (that's how Buffett qualified the decision to go in with them on Heinz).

On Monday, I suggested business-focused investors take a closer look at Ambev's ADRs. I expect investors who buy them at current prices will be raising their glass to three Brazilians in a few years' time.

Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool owns and recommends Berkshire Hathaway. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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