Buffett's Backing Helps 3G's Ambition in Unilever PursuitSonali Basak and Craig Giammona
3G has turned to Buffett in past for financing takeovers
Berkshire chairman defends job cuts as part of efficiency
Warren Buffett’s ability to provide billions of dollars and his willingness to defend job cuts are seen as valuable assets for the buyout firm 3G Capital as it seeks to combine Kraft Heinz Co. and Unilever.
Buffett backed 3G’s acquisition of HJ Heinz and then the ketchup maker’s tie-up with Kraft. Now the combined company, which counts Buffett as a director, has added to its ambitions, announcing Friday that it made an offer for the maker of Dove soap. Berkshire would be involved in financing if an agreement is reached, according to a person familiar with the matter, who asked not to be identified. Unilever said it rejected the $143 billion proposal.
Buffett’s Berkshire Hathaway Inc. has made billions of dollars by financing deals through debt or preferred-stock purchases, and if the consumer giants reach an accord, “It seems very plausible that they would participate in the funding,” Meyer Shields, an analyst at Keefe Bruyette & Woods, said in an interview. “I’d be shocked if not.”
Berkshire had a cash pile of more than $80 billion as of Sept. 30, and the hoard has been growing because Buffett hasn’t announced a mega-deal since the 2015 agreement to buy Precision Castparts. Also, some lucrative financing deals have expired, including the decision last year by Kraft Heinz to redeem $8 billion in preferred shares that were held by Buffett. Berkshire was paid 9 percent a year on that holding.
Though Buffett has said his favored path for building Berkshire is through acquisitions, the company has been more active in recent months buying stock in public markets, building stakes in U.S. airlines and Apple Inc. Given the premium that is required to buy out a whole company, it may make more sense at current market valuations for Buffett to lock in a fixed rate of return in a financing deal, Shields said.
Buffett, who is Berkshire’s chairman and chief executive officer, sometimes gets warrants on such transactions, too. This allowed Berkshire to buy shares at a discounted price in 3G-backed Restaurant Brands International Inc., the parent of Burger King and Tim Hortons. Buffett didn’t immediately return a call seeking comment.
“It’s safe to say that with Buffett they can overcome any financial hurdles to get the deal done,” said Ken Shea, an analyst at Bloomberg Intelligence. “It’s a good partnership -- 3G is the operator and Berkshire is the banker.”
Kraft-Heinz jumped 8 percent in New York trading, while Berkshire slipped 0.3 percent as of 10:22 a.m. Unilever rallied more than 11 percent in Amsterdam.
The public support that Buffett provides can be valuable too, especially since 3G’s approach typically involves slashing thousands of jobs, a strategy that can draw public ire in an era of populism that helped propel Donald Trump to the White House. Buffett has said that 3G is fair with severance payments, and that it makes no sense for companies to employ more people than they need.
“Efficiency is required over time in capitalism,” Buffett said at Berkshire’s annual meeting in 2015. “I really tip my hat to what the 3G people have done.”
The billionaire is among the most popular figures in American business because of his homespun wisdom, wit and charitable giving. He has further emphasized the point on efficiency in his letters.
Buffett’s remarks are “another way of saying ‘expense reductions,”’ Shields said. “And that’s another way of saying ‘firing people.”’
3G Capital is under pressure to either do another major deal or show the company can boost sales. Both Buffett and 3G co-founder Jorge Paulo Lemann, have ties to the consumer-products industry. In the late 1990s, they were on the board of directors at razor maker Gillette, though they weren’t close at the time.
Buffett didn’t really get to know Lemann that well “until years after I should have,” the Berkshire CEO said in 2015. At 3G, “They’re already doing big things, but they’ll do even bigger things. They set extremely high standards for themselves, and then they exceed them.”