Recently Kraft Heinz Co., which is partly owned by 3G and Berkshire Hathaway, made a $143 billion approach to take over U.K. consumer products giant Unilever. Kraft Heinz later said Unilever has declined the offer, but that “we look forward to working to reach agreement on the terms of a transaction.”
The strategy behind the deal is to follow a simple formula:
Buy a company that is concentrated in one market, combine it with another somewhere else and then spread the products across the world.
Example: When 3G bought Burger King in 2010, majority of its restaurants were located in the U.S. But, since then, 3G has pushed Burger King into Latin America, Europe and the Middle East, making it one of the fastest-growing fast-food chains in the world. 3G teamed up with Mr. Buffett in 2014 when Burger King took over Canadian coffee-and-doughnut chain Tim Hortons Inc. for $11 billion. The company has since brought more Tim Hortons to the U.S. and to new overseas markets such as the Philippines.
Note: In this post, I am not interested in probing the Unilever bid issue. Rather, I am more interested in whether it is a right step on Warren Buffett’s part to team up with 3G, for such M&A deals?
If Buffett’s idea of teaming up with 3G a right move?
3G brings its experience in cutting costs and driving efficiency, to the table. Kraft Heinz had already raised the bar on profitability in the consumer industry. It is managed with ruthless efficiency by a team of mostly Brazilian executives installed by 3G Capital. Plants have been closed, corporate jets sold, everyone now flies economy class. According to Fortune Magazine, overhead costs in the company dropped from 18.1% to 11.1% in the last two years. 3G has essentially transplanted the performance culture of an investment bank to the world of fast-moving consumer goods.
While the 2 companies are aligned on their Strategy, there is an inconsistency in their operating styles: While Berkshire has a reputation for hands-off ownership, 3G is known for aggressively cutting costs and jobs. This might have led to a conflict in future.
Read more here.