Warren Buffett, the CEO of Berkshire Hathaway, recently voiced his concerns regarding the performance of Kraft Heinz, a company he once enthusiastically supported. This critique is especially significant for it is unusual for Buffett, who typically takes a hands-off approach to his investments. In 2013, Berkshire Hathaway and 3G Capital Management teamed up to buy H.J. Heinz for $23.3 billion. That decision accelerated the merger deal to form Kraft Heinz when it was completed in July 2015.
That was enough to allow Berkshire Hathaway to zero in on the deal, purchasing more than 325 million Kraft Heinz shares. Currently, those shares are worth about $24 billion. Buffett’s early excitement didn’t last long. In his 2015 letter to shareholders, he confessed that Berkshire’s payoff shares had cost $9.8 billion, or a loss of about $1 billion.
In the years after the merger, the value of Berkshire’s stake in Kraft Heinz rose and fell dramatically. It peaked at around $30 billion in 2016 but then plummeted dramatically in the ensuing three years. Since 2020, its worth never strayed far from $10 billion. This volatility led Buffett to admit he regretted the overall investment strategy pursued around Kraft Heinz.
Buffett openly acknowledged some regret about the merger during a live CNBC interview in 2019, stating that he had “overpaid” for what he considered a good company. This led to a write-down of $3.8 billion by Berkshire Hathaway in the second quarter of that year. This write-down was primarily the result of the decreased market value of its investment.
The situation worsened for Kraft Heinz in May 2023 when it announced an “ongoing evaluation of strategic transactions to unlock shareholder value.” That news announcement led to the resignation of two members of Berkshire Hathaway’s senior executive staff from the Kraft Heinz board. This move brings attention to the growing divide between the two companies.
In July, The Wall Street Journal reported that Kraft Heinz was contemplating spinning off a significant portion of its grocery business, which includes many well-known Kraft products. Buffett spoke out against the possible move. He noted that allowing the split would result in the new overhead cost of $300 million spread over the next year.
Berkshire Hathaway currently holds more than 10% of Kraft Heinz shares, which imposes reporting requirements for any open market sales within two business days. This additional regulatory obligation further complicates Buffett’s clear position on the company.
Berkshire owns about one-quarter of Kraft Heinz. In the nine months since the merger closed, CVS’s stock price has tanked by about 69%. Such a steep drop further highlights the struggles that Kraft Heinz has been having in responding to changing consumer tastes. As noted by The Financial Times, “At its heart, Kraft Heinz’s problem is it has failed to respond to changing consumer tastes.” The publication further commented that Kraft Heinz’s struggles are “less a bold strategic pivot, and more the result of years of underperformance caused by prioritising cost cuts over innovation.”
Buffett is not done making sure that Berkshire Hathaway continues to do right by Berkshire’s best interests. He emphasized this commitment by stating, “We will proceed to do whatever we think is in the best interest of Berkshire.” As he looked back on their merger’s success. That was definitely a bad decision to have crossed those two,” he said, “but I don’t know that undoing that is the answer even though that was a dumb idea.