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"TEXT - Fitch says Heinz acquisition adds unfamiliar aspects for Berkshire"

"All this begs the question: why didn't BRK make the Heinz acquisition alone?"

http://www.reuters.com/article/2013/02/22/idUSWNB003A9201302...

Tim
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"All this begs the question: why didn't BRK make the Heinz acquisition alone?"

I know it's a quote, but it doesn't beg the question, it raises it.

But once raised, the question is easily answered: BRK did the acquisition with 3G because it was brought to Buffett by 3G, and on terms that were favourable to Berkshire. It would be more pertinent to ask why 3G didn't do the acquisition alone. But Fitch goes on to answer their own question:

All this begs the question: why didn't BRK make the Heinz acquisition alone?

Fitch has no inside information to answer this question, but it certainly
appears this is an acquisition that was initiated and conceptualized by 3G
Capital. One could argue it shares characteristics of 3G Capital's earlier
acquisition of Burger King, which proved highly successful.

The key is that the likely strategic investment play in this case is a
restructuring of Heinz's operations and financial structure, a skill set
arguably more greatly possessed by 3G Capital than BRK. BRK's main value-add is,
in turn, their deep pockets and the legitimacy of the deal being associated with
BRK and Mr. Buffet.


English usage and spelling do not seem to be Fitch's forte, but at least their logic seems intact.

Regards, DTM
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Probably because it wasn't their idea. 3G brought the deal to BRK.
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The key is that the likely strategic investment play in this case is a
restructuring of Heinz's operations and financial structure, a skill set
arguably more greatly possessed by 3G Capital than BRK. BRK's main value-add is,
in turn, their deep pockets and the legitimacy of the deal being associated with BRK and Mr. Buffet.


Phrased another way, one might view it as a deal that only made sense
if some changes were made at Heinz. Berkshire doesn't have a management
team to do so, they don't do deals that require supplying management.

I'm not entirely sure this is really true, Heinz seems pretty good to me.
But it is a consistent interpretation.
Contrast it with this deal: Berkshire raises money with cheap bonds
as it did with BNSF and simply buys Heinz for $72.50 a share, financing
(say) 40% of the purchase price with cheap debt.
(Pure LBO but with debt on the buyer, not the target)
This isn't really Berkshire's way, to juice returns with recourse leverage.
The most interesting insight from this line of thinking is how unusual
the BNSF deal was in that respect. They key there is probably that
there was no real desire to use the leverage to boost returns, as it's
all going to get paid off pretty quickly. It's more of a long bridge.

Jim
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Phrased another way, one might view it as a deal that only made sense
if some changes were made at Heinz. Berkshire doesn't have a management
team to do so, they don't do deals that require supplying management.


From what I have read about 3G, these aren't people who are content to passively earn mid to high single digit returns on their investment. They go into companies and "optimize" the operations and then they eventually exit. What is strange about this deal is not only the fact that Berkshire is involved in a "turnaround" story (at least from the perspective of 3G) but that Buffett has said that 3G is be a partner "forever".

I'm sure this will be the subject of some discussion in the annual letter as well as at the shareholder meeting so we will probably have more answers relatively soon.
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This is a Financing Deal. Buffett gets 9% a year for $8 Billion of preferreds from a blue chip company thats been around since the 1860s. In an environment where Junk Bond credits yield 5%.

1/3 of Buffett's investment was in Equity, I presume as a precondition for getting the sweetheart of all sweetheart financing deals.

If the equity investment performs in line with the general market, Buffett will be thrilled with this deal.

He'll make a deal like this any day of the week. I thought it would take another verge-of-depression environment to get a deal like this ala Goldman/GE...ONLY Buffett gets deals like these. THATS why its so hard to "analyze".

Just another brilliant stroke by the master. In a tranquil stock market 5 year high/Junk Bond 5% world---this is a Grand Slam.

Don't make the mistake of overanalyzing the equity portion of this deal. Its an extraordinary deal with a money-good OK company. THATS the analysis that matters.

Just like the GE deal. Extraordinary deal with a money-good OK company. Buffett wasn't interested much in GE before--and hasn't owned it since. Doesn't matter. His INVESTMENT was a Home Run. Just like this Heinz investment IMO. Just like the Bank of America Titanic Home Run Investment---6% a year plus $3 Billion gift horse equity kicker in a year and a half. I remember people whining about B of A's fundamentals at the time. Wasted overanalysis. The fact is the Federal Reserve's primary objective (or at least the byproduct of its most significant systemically important policies since 2009) is to make sure people who own Bank of America obligations--get PAID.

Buffett never ceases to amaze.
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"All this begs the question: why didn't BRK make the Heinz acquisition alone?"

I know it's a quote, but it doesn't beg the question, it raises it.


Why is it wrong to say "this begs the question"? I use that expression all the time; didn't know it was wrong!
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why didn't BRA do it alone?
Price is TOO high. By gaining 9% preferred,
high price risk is vastly lessened to near can't lose.
9% is a given, if the 4B in equity does so so or down worst case,
still a good risk..
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No. of Recommendations: 5
Why is it wrong to say "this begs the question"
This raises the question, "Why not google it?"

Fwiw, when the proof is merely a restatement of the premise, the sentence has begged the question.
http://begthequestion.info/
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Just like the GE deal. Extraordinary deal with a money-good OK company. Buffett wasn't interested much in GE before--and hasn't owned it since. Doesn't matter. His INVESTMENT was a Home Run. Just like this Heinz investment IMO. Just like the Bank of America Titanic Home Run Investment---6% a year plus $3 Billion gift horse equity kicker in a year and a half.


Maybe you're getting the GE THRI (Titanic Home Run Investment), with its $3 bn gift horse equity kicker, mixed up with the BAC THRI, with its $5 gift horse equity kicker. Unless you're talking about how far it is in the money now, which would be $5 bn *($11.44/$7.14)= $3 bn in the money at today's prices. So with its 69% return in 18 months, the BAC one is more like a STHRI - Super Titanic Home Run Investment.

Regards, DTM
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>>Maybe you're getting the GE THRI (Titanic Home Run Investment), with its $3 bn gift horse equity kicker, mixed up with the BAC THRI, with its $5 gift horse equity kicker. Unless you're talking about how far it is in the money now, which would be $5 bn *($11.44/$7.14)= $3 bn in the money at today's prices. So with its 69% return in 18 months, the BAC one is more like a STHRI - Super Titanic Home Run Investment.<<<

You are absolutely right.

I can't even keep up with all the tape measure home runs. It's like watching the home run derby during the steroids era. I keep hearing Chris Berman say "back, back, back"...is Buffett juiced? :)

Point is..Buffett's hitting Tape Measure Home Runs investing in companies that bat maybe .275.

The same will be true with Heinz. And if their Emerging Markets strategy comes through...that's just gravy. It's a Home Run either way. $720 million a year in dividends assures at least that.
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Why is it wrong to say "this begs the question"? I use that expression all the time; didn't know it was wrong!

It is wrong, but one can make the argument, as does the smaller dinosaur here:
http://www.qwantz.com/index.php?comic=693

... that this incorrect usage has become so widespread as to change its meaning.

It's like the expression that I always learned as 'you can't have your cake and eat it too', which always seemed a bit illogical. You can have it, and then eat it, in fact that's the sequence of what we usually do, so why couldn't you do that?

When I eventually learned that the original expression was, 'you can't eat your cake and have it too', I was relieved - this makes much more sense. But in America (including my northern part), the incorrect order has become so ingrained, it is useless to fight it.

The trouble with 'begs the question' is that it doesn't mean 'it almost begs us to ask the question'. It means, as Wikipedia admirably concisely explains,

Begging the question (Latin petitio principii, "assuming the initial point") is a type of informal fallacy in which an implicit premise would directly entail the conclusion. Begging the question is one of the classic informal fallacies in Aristotle's Prior Analytics. Some modern authors consider begging the question to be a species of circulus in probando (Latin, "circle in proving") or circular reasoning.

I like how Wikipedia concludes its article:

Academic linguist Mark Liberman recommends avoiding the phrase entirely, noting that because of shifts in usage in both Latin and English over the centuries, the relationship of the literal expression to its intended meaning is unintelligible and therefore it is now "such a confusing way to say it that only a few pedants understand the phrase."

Regards, DTPM, Dart Throwing Pedant Monkey
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