KHC - Kraft Heinz Co.

[pau_]

WSJ: Kraft Heinz Withdraws $143 Billion Offer for Unilever

[John Hjorth]

Thanks for sharing, pau_,

 

Original joint press release is here.

[sleepydragon]

Thanks for sharing, pau_,

 

Original joint press release is here.

 

Regardless, they are now in the hands of arb funds. I will not be surprised some hedge fund like paulson built up a position and force them to sell. No position though.

[Spekulatius]

Thanks for sharing, pau_,

 

Original joint press release is here.

 

Regardless, they are now in the hands of arb funds. I will not be surprised some hedge fund like paulson built up a position and force them to sell. No position though.

 

I think there are a lot more roadblocks in Europe to do the takeover that Kraft Heinz want's to do than in the US. I don't think that a merger is likely. Quite the frankly, I think UL is better off on their own.

[John Hjorth]

Thanks for sharing, pau_,

 

Original joint press release is here.

 

Regardless, they are now in the hands of arb funds. I will not be surprised some hedge fund like paulson built up a position and force them to sell. No position though.

 

I think there are a lot more roadblocks in Europe to do the takeover that Kraft Heinz want's to do than in the US. I don't think that a merger is likely. Quite the frankly, I think UL is better off on their own.

 

Yes, personally I have been speculating about The Leverhulme Trust might have been such a roadblock in this situation.

[gfp]

Interesting article in the FT.  3G has raised $10 Billion from investors/principals, which was previously reported, but also has an option to request an additional $5B from investors.  Also mentions that 3G has contemplated starting a new platform, rather than rolling the next big thing into KHC or one of their other existing platforms such as QSR. 

 

This google link might work better for non subscribers -

 

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=12&cad=rja&uact=8&ved=0ahUKEwiW75niop_SAhVDOyYKHScXBoM4ChCpAggcKAAwAQ&url=https%3A%2F%2Fwww.ft.com%2Fcontent%2Fdb0e8b70-f744-11e6-bd4e-68d53499ed71&usg=AFQjCNGef71ZwfG23aqq5VznyKDqIRq8QQ

 

https://www.ft.com/content/db0e8b70-f744-11e6-bd4e-68d53499ed71

[DooDiligence]

3G = giggedy, giggedy, goo

 

https://videosift.com/video/Heinz-Handjob

[fareastwarriors]

Why the Hatchet Men of 3G Spent $10 Million on a Better Oscar Mayer Weiner

 

Turns out it isn’t good business to be known only for ruthless cost cutting.

 

 

https://www.bloomberg.com/news/features/2017-08-02/why-the-hatchet-men-of-3g-spent-10-million-on-a-better-oscar-mayer-weiner

[fareastwarriors]

Kraft Heinz names 29-year-old 3G Capital partner as CFO

 

https://www.cnbc.com/2017/09/08/kraft-heinz-names-3g-capital-partner-david-knopf-as-cfo.html

[AzCactus]

This is actually getting somewhat attractive. 

[fareastwarriors]

Warren Buffett to Retire From Kraft Heinz Board

 

https://www.bloomberg.com/news/articles/2018-02-23/warren-buffett-to-retire-from-kraft-heinz-board-as-his-term-ends

[Jerry Capital]

Just wanted to point out that $KHC is off 20% YTD and now trading under 15x earnings.

 

The probability of further consolidation only increases as the sector trades lower.

 

I am not buying here, sector has too many headwinds, but I am potentially interested at a lower price, anyone think that these levels represent "stupid cheap"?

 

 

[valuedontlie]

18x FCF and 4x sales for organic rev declines...

[vince]

obviously valuedontlie is leaving out (perhaps purposefully) that it is virtually guaranteed that 3G will make another sizeable acquisition, at some point in the not to distant future that will create enormous value.  and then they will do another.  call me crazy, but when you be can partners with an entity at a reasonable price,  that has the competencies that they do, and those competencies have proven over and over again to be very value enhancing, you should be very happy about these prices.  i dont know of many entities with those kind of value creating probabilities.

[no_free_lunch]

I am with valuedontlie.  I get that they will do an acquisition and the stock probably goes up but won't the future acquisition resemble the past ones?  The stock is now down considerably from where it IPO'd after we have had a chance for the old purchases to work through.  So if it isn't cheap and they haven't really added value based on what they have done in the past, what will continuing to do the same thing add?

[valuedontlie]

call ME crazy, but buying declining businesses at high cash multiples seems like a less than stellar way to invest your money... but what do i know... i am a small-time piker compared to 3G...

[CorpRaider]

Long CAG.  Watching this one, takes a big move in the equity to move the EV because of all that debt (sophisticated analysis there...gratis).  Not all that impressed with BUD or QSR to be honest.  Like my boy Connolly better to get some growth, even with inferior brands. 

[vince]

I wouldnt necessarily use todays price when determining whether they created value or not.  and although organic growth is slightly negative and it doesnt make sense to pay rich multiples of cash flow for that maybe you are again ignoring the obvious.  organic growth is desirable, no doubt, but its not the only way to create value.  and we may still get some nice organic growth and i would be very skeptical about other mgmts claiming that they could create value thru acquisitions but to ignore that with this mgmt is probably not the smartest move.  these are good prices to buy into that rare ability

[Spekulatius]

Anyone is concerned about the volume shrink and the high debt load? This could quickly become a cigar but stock. I am wondering about the sustainability of the 3 G business model. After all, when you cut the expenses to the none, you may end up owning a skeleton. They apparently are not able to reinvest the cost savings in growth, but it does just seem they they can or want to do so.

 

They need to acquire another company to repeat their playbook,  but with their town stock in the tank, their increased size and high debt load, I am not sure they can pull off something that is noteworthy accredited. This become highly reflexive as an investment and unpredictable.

 

Buffet left the board, I know there is a good reason, he need to slow down, but I can’t help but think that he knows that the next few years won’t be as much fun as the last couple.

 

 

[scorpioncapital]

Berkshire's holding in Kraft is a bit different, partly because the dividend is non-taxable and leveraged with float. Most individuals can get the tax free dividend via retirement plans but not the leverage.

 

However, KHC is now only marginally above his purchase price all in cost 3 years ago...minus 3 years of dividends which is not insignificant.

 

Can't speak for all the products but in a Tesco in Europe I saw Heinz Ketchup bottles ...alongside maybe 3-5 other 'no name' brands in similar looking bottles. Name brand franchises I think are just generally being diluted, moreso in food items.

 

The food services b2b business may have good potential though.

 

 

[Contra123]

These guys have to do another deal; they just have to, the stock doesn't "work" otherwise.  Pretty much all of the secular forces are moving in the wrong direction, and the competitors have not been standing idly by and have been engaging in their own (okay, maybe not as well-executed as KHC's) versions of ZCB.  I wouldn't go long here. 

 

There's a perverse circularity here, too; they have to do a deal, but their own stock is the key currency.  The lower the stock price drops, the worse it is for KHC's expected future (pro-forma for deals) EPS.

[Spekulatius]

These guys have to do another deal; they just have to, the stock doesn't "work" otherwise.  Pretty much all of the secular forces are moving in the wrong direction, and the competitors have not been standly idly by and have been engaging in their own (okay, maybe not as well-executed as KHC's) versions of ZCB.  I wouldn't go long here. 

 

There's a perverse circularity here, too; they have to do a deal, but their own stock is the key currency.  The lower the stock price drops, the worse it is for KHC's expected future (pro-forma for deals) EPS.

 

Yeah, reflexivity raises its ugly head. The high debt load doesn’t help either. My best guess is that the 3G model will go to the scrap yard, because it only works short and medium term.

[scorpioncapital]

You can research but I believe Buffett has wrote extensively on the foolishness of making dumb acquisitions just because. Smart ones maybe, but in today's market does it really make sense?

[Contra123]

The 'growth algorithm' (jfc.. I just said 'growth algorithm') here is the tried-&-tested buy lower-margin businesses at a lower EV/EBITDA multiple using our own higher-multiple stock and a fair amount of leverage, and then slash & burn and watch for that sweet EPS accretion.  In the absence of that avenue they have to grow EBITDA organically, and the runway to do that is .. ehr.. running out at a brisk rate (IMO).

[vince]

I believe it may be short sighted to think that they can't grow organically again.  I think they definitely will which would maybe help them use the stock as currency again.  However, I dont believe they absolutely have to use a significant amount of stock to do another acquisition.  Last time I checked there was a certain individual with lots of ready cash laying around which gives them alternative ways to structure financing.  I dont own a position here so I have no dog in this race but I think some investors quickly come to conclusions in error.  First, there are many ways to create value, you do not need organic growth.  In fact, by not having organic growth possibly opens up the door for large repurchases at attractive prices.  If I had a position I would prefer organic growth (assuming it was profitable) but as an investor my best performing investment (in dollars and percentages) by a wide margin was in a business with no unit growth and the almost certainty of long, and steady shrinkage.  Additionally, I see widespread negativity directed at businesses where acquisitions are relied upon to create value.  I actually think, with this mgmt team anyway, that value creation opportunities are more certain and more valuable than many businesses that grow nominally with GDP but need to tie up lots of incremental cash to do it.  Just because there have been lots of blow-ups with this strategy, doesnt mean they are all bad.  I cant help but sense that frustration with the stock price is to blame and if I bought this at 80 bucks I wouldnt be happy for sure.  But I certainly wouldnt be throwing in the towel here and claiming that they are sure to fail and the model is broken etc etc.  I am surprised that people arent instead talking more about the opportunity here with this all star board, 3G management, Buffett's backing and the history of success of all these actors.