The stock of US food giant The Kraft Heinz Company plummeted in pre-market trading on Wednesday, dropping nearly 4% at one point, impacted by bearish news that Berkshire Hathaway might sell its stake. According to a filing submitted by the company to the SEC, Berkshire Hathaway may sell its 27.5% stake in Kraft Heinz.
Buffett's involvement with Kraft Heinz began in 2013 when he led Berkshire Hathaway, in partnership with Brazilian private equity firm 3G Capital, to privatize H.J. Heinz Company in a deal valued at $28 billion. In 2015, Buffett and 3G Capital further orchestrated the merger of Heinz with Kraft. Judging by the stock performance, this investment by Buffett is highly likely to end in failure. Kraft Heinz's stock price has declined for three consecutive years, and its current price is nearly 70% lower than its 2017 peak, making it one of the worst-performing stocks in the US food sector.
A filing amendment to the prospectus submitted by Kraft Heinz to the SEC on January 20 (Eastern Time) indicated that Berkshire Hathaway may sell its entire 27.5% stake in Kraft Heinz, potentially exiting this more than decade-long investment that has been far from successful. This filing registered the potential resale of Berkshire's 325.4 million shares. To date, Berkshire Hathaway remains the largest shareholder of Kraft Heinz. Influenced by this news, Kraft Heinz's stock price fell sharply by 3.66% in Wednesday's pre-market trading.
It is worth noting that this development occurred shortly after Buffett's retirement. Some analysts speculate that this significant decision was likely made by the company's new leader, Greg Abel. There is currently no indication that Berkshire Hathaway has begun selling, but CFRA Research analyst Cathy Seifert suggested this might just be the beginning of a comprehensive review of Berkshire's diversified investment portfolio by the new leadership.
Seifert further commented, "My sense is that Greg Abel's leadership style may differ from Buffett's. If this sale is completed, it would signal a shift in the company's mindset. Under Buffett's leadership, Berkshire Hathaway typically focused on acquisitions rather than divestitures. We believe it's not improbable that Abel will evaluate each of Berkshire's subsidiaries and decide to divest those that do not meet his internal criteria."
Over a longer time horizon, Kraft Heinz's stock performance has been disappointing, having declined for three consecutive years. At the latest close, its stock price was $23.76 per share, with its total market capitalization shrinking to $28.124 billion. Looking back, Buffett partnered with 3G Capital to acquire ketchup giant Heinz in 2013. In 2015, they pushed for the merger of Heinz with Kraft. The merged Kraft Heinz became the world's fifth-largest food and beverage company at the time, trailing only Nestlé, PepsiCo, Coca-Cola, and Unilever.
As the largest shareholder with a 27.5% stake, Berkshire Hathaway had never reduced its holdings in Kraft Heinz since the 2015 merger. In August of last year, Berkshire Hathaway announced a pre-tax impairment charge of approximately $5 billion on its investment in Kraft Heinz. This followed a $3 billion write-down in 2019, marking another significant devaluation of its investment in the food giant.
Last September, Kraft Heinz announced it would split into two independent publicly traded companies, signifying the formal conclusion of the $46 billion merger orchestrated by Buffett a decade prior. This split aims to simplify the business structure, enhance brand resource allocation efficiency and profitability, and address persistent performance pressures and industry changes. Kraft Heinz expects the separation transaction to be completed in the second half of 2026.
Regarding this split, Buffett expressed disappointment at the time, stating he was disappointed that the idea of splitting Kraft Heinz had emerged and that shareholders would not vote on the company's future development. Buffett acknowledged that the merger deal from a decade ago had not worked out well, admitting that merging Kraft with Heinz "was not a brilliant idea." He also revealed that Greg Abel, who is set to succeed him as CEO of Berkshire Hathaway at the end of 2025, had also expressed disappointment with Kraft Heinz.
Buffett has repeatedly publicly reflected on the investment missteps regarding Kraft Heinz, citing key reasons including paying too high a purchase price, deteriorating industry competition, over-reliance on cost-cutting that harmed long-term competitiveness, lagging responses to shifting consumer trends, and errors in management judgment. Buffett explicitly admitted that overpaying for Kraft Heinz was a critical factor in the investment's failure. When Kraft merged with Heinz in 2015, Berkshire's valuation of the Kraft portion significantly exceeded its reasonable value. Buffett once compared, "We bought Heinz at a reasonable price initially, but we paid way too much for the Kraft part."
He emphasized that even for high-quality businesses, paying an excessive price can turn a "good investment" into a "poor investment." While Kraft Heinz's profitability could have supported a reasonable valuation, the overly high acquisition cost resulted in a return on investment far below expectations. Regarding changes in the competitive landscape, Buffett pointed out that the rising power of retail systems posed a significant external challenge. For instance, Costco's Kirkland brand's sales now exceed the total sales of all Kraft Heinz products combined. In contrast, Kraft Heinz's historic brands lacked sufficient differentiation to compete effectively against lower-priced retailer brands.
Buffett admitted, "In the battle for dominance between retailers and brands, the power of the retail system is rising, and the influence of traditional brands like Kraft Heinz is diminishing." Berkshire's partner, 3G Capital, was known for its "zero-based budgeting" approach. While this strategy reduced costs and boosted margins short-term, excessive cuts weakened the brand moat by reducing marketing exposure and hindering product innovation. Buffett reflected, "Cost-cutting is necessary, but it cannot come at the expense of long-term investment."
Furthermore, an SEC investigation disclosed by Kraft Heinz in 2019 exposed internal control weaknesses, which shook Buffett's confidence in management. He stated that even with management you select yourself, vigilance regarding internal risks cannot be relaxed. Strategic execution shortcomings by management also exacerbated the degree of investment underperformance.