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Stocks B / Berkshire Hathaway

URL:  http://boards.fool.com/multiples-dont-really-matter-the-13rd-buffett-30542118.aspx

Subject:  Re: Berkshire buys Heinz Date:  2/14/2013  11:19 AM
Author:  mungofitch Number:  198573 of 214545

Multiples don't really matter, the 1/3rd Buffett put in the equity was the price
he had to pay for a several hundred basis points premium to junk yield on the Preferred.


Make sense.
And yet, the price on the common really isn't that bad either.
Never thought I'd do it, but quoting Mr Cramer
"This is a terrific deal for Buffett. I don't think he is overpaying in the long term.
This is one of the most iconic brands but it's one of those cases where the
company may have been out of steam for now but the brands never lost their luster."


I'm only disappointed that it isn't full control, as the earnings could
have been upstreamed without tax.

They'll get $8bn*9% = $720m/year pretax in preferred.
That's coincidentally (?) just about what they would have paid out this year in dividends.
That, plus the likely opportunities for tuck in acquisitions says to me
that it's unlikely there will be dividends on the common for some time.
I'd expect everything above the preferred to be retained for quite a while.
So, take current net earnings, subtract dividends to the new preferred,
and divide by two to get Berkshire's look-through earnings on the common.
In round numbers (1160m - 720m)/2 = $220m/year.
So, total around $940m/year, a mix of $720m pretax and $220m look-through which is post-tax.

Anybody know what tax rate BRK pays on preferred dividends from a 50% owned company?

It will be interesting to see what rates the new Heinz can borrow at
when it comes time to replace the debt. On the one hand this is just
junk papre from an LBO, but on the other hand it's 50% owned by Berkshire
and extremely unlikely ever to be allowed to default in real life.

Too bad Mr Buffett said flat out he wouldn't sweeten the deal.
$72.57 would have been more appropriate than $72.50, don't you think? Heinz loves their 57s.

Jim
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