The Economist discusses the merits of Buffett's latest acquisition, Kraft Foods.
Buffett buys Kraft Foods: A big bite
Berkshire Hathaway’s latest big deal is quite a mouthful
WARREN BUFFETT says he likes to buy companies that are easy to understand and are performing well. His latest deal, the $50 billion acquisition of Kraft Foods that was announced on March 25th, passes only one of those tests. Most people can get their heads around the slices of processed cheese and hot dogs that Kraft churns out—indeed Mr Buffett, known to favour plain fare, would probably like to get his lips round them, too. But as a business, Kraft is a bit of a mess.
Last year its revenues were stagnant and its volumes and profits fell. Its chief executive left in December. It generates 98.5% of its sales in the mature markets of America and Canada, where, the suspicion is, a new generation of healthier eaters no longer aches to scoff a Kraft Macaroni & Cheese, followed by a plate of Jello and washed down by a Capri Sun drink.
Kraft’s predicament is in large part a result of its turbulent ownership over three decades, in turn a testament to the hyperactivity of Wall Street’s dealmakers. It has been the subject of seven big mergers or spin-offs since 1980, including an unhappy spell under the ownership of Philip Morris, a tobacco firm, between 1988 and 2007. Most recently Kraft was separated from its global snack brands in 2012, which were renamed Mondelez International.
Reflecting Kraft’s troubled past and iffy present performance, Mr Buffett is not buying it alone, nor managing it. Instead he is working with 3G Capital, a buy-out firm with Brazilian roots which is the closest thing the consumer-goods industry has to a miracle-worker. In 2013 Berkshire Hathaway, Mr Buffett’s investment vehicle, teamed up with 3G to buy Heinz, another food company, with each taking 50%.
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