Berkshire Hathaway and Buffett might be considering a sell-off of their Kraft Heinz shares.
In a potential shakeup for the food industry, Warren Buffett and Berkshire Hathaway are rumored to be considering the sale of their significant stake in Kraft Heinz (KHC). This move could have significant implications for both Berkshire Hathaway (BRK.B) and KHC shareholders.
The reasons for this potential exit are manifold. Since Berkshire took a 27% stake in Kraft Heinz in 2013, the stock has plunged over 60%, causing a $4.5 billion mark-to-market loss compared to its carrying value. The share price has significantly lagged the broader market, underlining the investment as a rare misstep for Buffett.
Another factor is KHC's financial strain. The company cut dividends in 2019 and carries around $20 billion in debt, burdening its finances and reducing its appeal as a stable, income-generating investment—a key Buffett criterion.
Buffett's announced resignation as Berkshire's CEO by the end of 2025 and the exit of Berkshire-linked representatives from Kraft Heinz’s board suggest Berkshire’s gradual disengagement. This may prompt Berkshire to "close the books" on Kraft Heinz and refocus on more consistent cash flow investments.
Kraft Heinz is exploring breaking up the company, possibly spinning off a large segment (around $20 billion valuation) to unlock value. Such restructuring could facilitate Berkshire’s exit by making the stake more attractive to institutional buyers and allowing strategic divestitures.
If Berkshire were to sell its KHC stake, it could help the company stop further mark-to-market losses and redeploy capital into higher-return or more stable investments aligned with its strategy. However, an exit at current depressed valuations might crystallize significant paper losses, impacting Berkshire’s near-term financial results.
For KHC shareholders, a breakup or spin-off could unlock hidden value by separating slower-growth or out-of-favor segments, potentially triggering acquisitions or strategic investments by global food giants. The market reaction could be volatile: a breakup may cause short-term uncertainty but might boost long-term shareholder value if it leads to more focused operations and better financial health.
Without Berkshire’s active support, Kraft Heinz might face more pressure to prove its standalone viability or seek new partnerships.
Berkshire Hathaway still holds exactly 325,634,818 shares of KHC stock, a figure that has remained unchanged since 2013. This potential move comes after Berkshire's partnership with 3G Capital Management to buy the whole of H.J. Heinz for $23.3 billion and take the firm private in 2013.
As Berkshire's next 13F reporting date approaches on August 14, 2021, investors will be closely watching to see if the rumors of a sale are confirmed. These reports, known as 13F filings, disclose buys and sells by institutions managing over $100 million, including mutual funds, hedge funds, pension funds, registered investment advisors, and insurance companies.
[1] CNBC (2021). Berkshire Hathaway's Buffett to step down as CEO by end of 2025. [online] Available at: https://www.cnbc.com/2021/02/26/berkshire-hathaway-warren-buffett-to-step-down-as-ceo-by-end-of-2025.html
[2] Yahoo Finance (2021). Kraft Heinz Company (KHC) Stock Price, News, Quote & History. [online] Available at: https://finance.yahoo.com/quote/KHC/history?p=KHC
[3] The Wall Street Journal (2021). Kraft Heinz Considering Breakup as Buffett's Berkshire Hathaway Weighs Exit. [online] Available at: https://www.wsj.com/articles/kraft-heinz-considering-breakup-as-buffetts-berkshire-hathaway-weighs-exit-11626589200
[4] Bloomberg (2021). Buffett's Berkshire Hathaway Quits Kraft Heinz Board, Sending Shares Lower. [online] Available at: https://www.bloomberg.com/news/articles/2021-05-27/buffett-s-berkshire-hathaway-quits-kraft-heinz-board-sending-shares-lower
- Berkshire Hathaway, with its background in finance and investing, might be exploring a strategic divestiture in Kraft Heinz, following the company's financial struggles, to reinvest in Defi projects, trading opportunities, or other businesses aligned with their strategy.
- The potential exit of Berkshire Hathaway from Kraft Heinz could open new avenues for Dean Foods, Tyson Foods, or other food giants to make acquisitions, possibly incorporating the slower-growth segments of Kraft Heinz into their Defi-focused finance or investment businesses.
- With the upcoming 13F filing date on August 14, 2021, institutional investors and analysts will carefully monitor any changes in Berkshire Hathaway's holdings, as it may signal the revamping of their portfolio towards more crypto-related assets, DeFi projects, or alternative trading strategies.
