Buffett’s Successor Contemplates First Major Move
This month, Warren Buffett’s successor stepped into the CEO role and may be eyeing a significant decision.
Kraft Heinz informed investors on Tuesday that Berkshire Hathaway could be looking to divest its substantial stake of 325 million shares in the company, which Buffett played a crucial role in founding back in 2015. This was detailed in a filing made to the stock market regulator.
Buffett and 3G Capital, a Brazilian investment firm, were behind the merger of Kraft and Heinz, as they already owned Heinz and believed strongly in its brand. However, it seems like Greg Abel, now in charge, might want to veer into new territory.
Throughout the years, Buffett has come to recognize that Kraft Heinz’s competitive edge against private label brands is not as formidable as he initially thought. This realization has coincided with a noticeable consumer shift towards store brands and away from processed foods. Last summer, Berkshire recorded a $3.76 billion writedown on its investment in Kraft Heinz. Buffett had expressed disappointment last fall regarding Kraft Heinz’s plan to split the company in two. Additionally, two representatives from Berkshire stepped down from Kraft’s board last spring.
Acquisitions have been a rarified event under Buffett’s leadership, even during tough times. On Tuesday, Berkshire didn’t respond to inquiries regarding Kraft Heinz’s filing, which stated that its largest shareholder “may from time to time offer to sell 325,442,152 shares.” Following this news, Kraft Heinz’s stock dipped nearly 4% to $22.85.
It remains unclear if Berkshire has initiated any sales just yet. However, analyst Kathy Seifert from CFRA suggests that this might be the opening act of a broader evaluation of Berkshire’s holdings. The conglomerate boasts a stock portfolio worth over $300 billion, alongside various insurance companies, utilities, and a diverse mix of manufacturing and retail businesses.
Seifert speculated, “I sense Greg Abel’s leadership might lead to a shift from Buffett’s more conservative approach. If this sale goes through, it could indicate a change in how the company operates.” Historically, under Buffett, Berkshire focused on acquisitions instead of selling off assets. Seifert added, “It’s not out of the question that Abel might review all subsidiaries and consider selling those that don’t meet internal benchmarks.”
Abel is already well-acquainted with many of Berkshire’s companies, as he has been overseeing all non-insurance operations since 2018. Now, though he officially took on the CEO title on January 1st, Buffett will continue as chairman. Investors are keenly watching for any new directions Abel may steer the conglomerate.
Chris Ballard, managing director at Check Capital, suggested, “For Abel, selling Kraft might be the easiest option. Honestly, we wouldn’t be upset if we saw our holdings move on.” Still, he pointed out that given the high stock value, it might be tricky to offload all shares on the market without strong potential buyers.
Buffett had previously stated that Berkshire wouldn’t entertain a bulk bid for its shares unless a similar offer was extended to all Kraft Heinz shareholders.
