What it means in post-Buffett era

00:00 Speaker A

reports note in here Mel. Okay, Berkshire could soon sell some or all of its stake in Kraft Heinz, which got clobber today. was down about 6%. Uh you own Berkshire in the portfolio Mel, you saw those headlines, you read the reports. What do you make of it? How was your what was your interpretation of that?

00:23 Speaker B

Well, first of all, good to be back with you, Josh. I I think it’s pretty interesting for context, like you said, new CEO change, we’re three weeks into Greg Abel’s 10-year as CEO. He’s taking over from the highest profile business leader we’ve we’ve ever seen. So that that’s pretty big shoes to fill. Uh it’s tempting to look at this uh data point, this filing and interpret this as uh you could almost look at this as like a like a like that moment in Godfather one when Michael took over and he said, today I settle all family business. This is a bad investment.

01:07 Speaker B

Everyone’s been public about this and even the split of the two companies is not something that Berkshire management are happy about. Uh Buffett sat on this, owned this for many, many years, admitted in 2019 that it was kind of a disaster. It looks like Greg Abel’s ready to move on from this. probably easier to move on from someone else’s mistake than your own as as humans. Uh but this is an early indication uh and we won’t know more until another month from now when we get earnings and we get some more commentary, but for now this is an indication that um the style may not be different, but the decisiveness and maybe the the ability to move on quicker from things.

01:46 Speaker A

You know, it’s interesting kind of reference that. I mean, Craft Heinz is it’s it’s talked about and framed as sort of this um unusual mistake by Buffett, right? I’m just curious what what was the mistake Mel? what what’s the the lesson learned here?

02:11 Speaker B

Well, uh Buffett would be the first to say that he’s made many, many mistakes. All investors have. Um this his mistakes are higher profile, right? But they also go against a much stronger track record than most. So that’s important to point out. Uh I think the the valuation here, this was a this was a joint venture with a with a private equity from a little bit different from his typical uh business. They they bought um one part of the business then merged it with the other later on. Uh but it seems like the bet was on consumer taste uh that hasn’t really panned out. Uh there’s been a much more of a drive for for a healthier lifestyle, obviously the GLP1s and things like that must be a factor there. Plus no one uh very few people foresaw the kind of inflation we saw, which is which has hammered these businesses with input costs. So those two things have made it not not very exciting business. uh but the the actual valuation paid up front seems to be uh um more than a little undisciplined, shall we say?

03:31 Speaker A

You know, in terms of uh what’s next? It’s interesting, Mel. I mean, Buffett sounds skeptical that a fix a split is going to be the fix here at Craft Heinz. He told CNBC last year, he said, uh it certainly didn’t turn out to be a brilliant idea to put them together, Buffett saying, but I don’t think taking them apart will fix it. what do you think there, Mel? Any any line of sight or opinion there?

04:02 Speaker B

I don’t think it’s a silver bullet, and I don’t think either option is particularly compelling. Um it it’s just these are not fantastic businesses to be in right now. It’s just a question of grinding through. If they think that splitting them apart and having more specific focus in certain areas, there’s a little bit more growth in the in the ketchup and the mayo side of the business. Uh so, you know, fair enough, but in the market right now, there’s there’s more exciting places to be. So I don’t think there’s a silver bullet here.

04:41 Speaker A

Finally, I just want to circle back on something you referenced earlier. You know, you’re talking about Greg Abel. I am curious what you think the craft hez moves signals Mel, if anything about his leadership going forward.

04:58 Speaker B

Yeah, I don’t I think I think incrementalist is the word we would use. Uh it’s a long, long apprenticeship under some a couple of really wise investors. and I will say that if there is a little bit more of a if we see more activity this year and again, we’re going to really everyone’s going to be paying real close attention here. I think it if we see more of this fail faster, uh that’s something that will be different for investors. I mean, you know, 13 years for an investment that’s not fast uh to fail here, but just the idea of moving on from things. we might see more activity in the portfolio. The other thing is they’re sitting on an absolute mountain of cash. This will only increase the cash. If they do divest this stake. Uh what is he going to do with that cash? That’s another thing to to watch out for. Um you know, we can’t sit in treasury bills with half the company’s uh balance sheet all year long, I presume.