Ketchup Comes Off the Table

This morning, Berkshire Hathaway announced that it was acquiring Heinz (HNZ) for $72.50 per share - approximately a 20% premium to yesterday’s close - 13.2x EV/EBITDA.



HNZ wasn’t our favorite stock or our favorite management team, but the transaction does make sense within the context of Warren Buffett’s (Berkshire Hathaway) preferred investing style of being involved in iconic brands.  At various times, Berkshire has owned share of KFT (old Kraft Foods), BUD and KO – HNZ certainly fits the profile.



What we didn’t like about HNZ is largely irrelevant at this point – EPS growth driven by a lower tax rate and declining brand investment.  Good luck to Mr. Buffett.



Importantly, we don’t see this as a harbinger of a consolidation wave in packaged food, though obviously all of the “deal” names get a bid this morning – POST, for example.  CPB also has a bid, though some of the move is likely short covering into earnings as well as this news.  We wouldn’t be doing anything into the CPB print, but might look to short on any strength.



One off deals aside, we prefer to stick with our preferred long in the space, CAG, as recently highlighted on Hedgeye’s Consumer Best Ideas calls.

 

-Rob

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

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Matt Hedrick

Senior Analyst


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