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Stocks B / Berkshire Hathaway

URL:  http://boards.fool.com/evaluate-this-deal-as-you-would-a-bond-30542895.aspx

Subject:  Re: Berkshire buys Heinz Date:  2/14/2013  4:53 PM
Author:  DrtThrwingMonkey Number:  198606 of 218891

Evaluate this deal as you would a bond investment.
$8bn preferred shares as perpetual nominal 9% plus $4.5bn equity at 5% plus inflation plus modest growth.
Home run? No. But a guy could do worse.



It is amazing how little detail about the deal Berkshire's PR put out. Because at first blush, it seems like a terrible deal: buying a slow-grower that was already trading at 18 times earnings, tack on a 20% premium, not full control because a bunch of Brazilian guys are involved, etc. The value guys' shirt-tearing posts almost write themselves: why not buy back more Berkshire shares? Walmart is at 15 times earnings, why not just buy more of that? Buffett is losing it, just because he thinks he understand ketchup is no reason to buy such a stodgy company at nosebleed valuations.

Then you start to see a few other things trickle in. These Brazilian guys are pretty sharp operators, they're the ones who turned AnBev into the giant it is now, with some serious operating chops. Berkshire is only buying $4.5 bn of equity in this deal. Heinz's ROE is already astronomical, going back as far as you like. The deal is financed with dollops of debt, so that equity investment is highly leveraged, both for 3G and for Berkshire. And Berkshire itself is the major provider of financing, at very juicy terms, 9% on $8 billion. I