I’ve gotten a few questions about Jason Williams’ free Wealth Daily article on Friday that hinted at “Warren Buffett’s Next Target,” so I thought we’d take a moment to throw those clues into the ol’ Thinkolator for you.
There is a cottage industry on Wall Street right now that really demonstrates the short-termism of the markets: No longer are we talking about the “next Warren Buffett” or whether or not we can identify the “next Berkshire Hathaway” to build long-term wealth with a “one decision” investment… now we’re trying desperately to identify the next company that will be acquired by Warren Buffett, in hopes that the shares will pop in a hurry if we guess right.
Though, to be fair, most of the speculation revolves not around Buffett, who tends to be the background partner and the financier, but the activist acquirers who Buffett has been inclined to partner with, 3G Capital. After 3G and Berkshire collaborated on the Kraft/Heinz merger a couple years ago, and were rebuffed recently in their first overtures to Unilever, everyone’s trying to figure out where 3G will go next — and, with Buffett’s billions available for financing deals, there’s almost no limit (Unilever is a $150 billion global conglomerate, and it would have been a big bite for the smaller $110 billion Kraft Heinz, but no one really doubted that they could do it if Unilever was willing and 3G and Berkshire were on the deal).
That’s not to say Berkshire isn’t happy to be an acquirer, though they don’t generally prefer to take the lead on highly public takeovers of public companies — Buffett’s preference is either to be a financier with good terms (like preferred shares or warrants), or to acquire private companies in near-handshake deals without an auction process. There are exceptions, like Berkshire’s gradual takeover of Burlington Northern a decade ago and their takeover of Precision Castparts in 2015, both of which were public companies that Berkshire acquired by paying a significant premium, but, generally speaking, when folks talk about the next big acquisition from Berkshire these days they’re really looking for the next opportunity Berkshire has to finance another big, levered deal run by 3G Capital.
With good reason — 3G Capital is not terribly popular, largely because they are focused on efficiency and their takeovers end up leading to a lot of cost cutting, but they have had some incredible success with cost cutting and turnarounds and M&A at Anheuser Busch, Burger King/Tim Hortons, Kraft Heinz and elsewhere… and Berkshire has already enjoyed a nice boost from its large stake in Kraft Heinz.
That cost cutting generally means a lot of layoffs and plant or office closures, and they have a high enough profile as corporate raiders that there are even questions at the Berkshire Hathaway annual meeting each year about whether Berkshire should really be working with these kinds of rapid-downsizing investors. Buffett has responded with laudatory words about 3G’s success in growing businesses, and has generally noted, in his typically folksy way, that “I don’t know of any company that has a policy that says we’re going to have a lot more people than we need.”
With 3G running the show, Buffett gets to be part of an aggressive takeover team that works with companies that are big enough to move the needle for the giant Berkshire portfolio… but he also gets to be a passive partner, without controlling the company or signing the layoff notices. It’s a fine line to walk, because part of what makes Berkshire appealing as an acquirer of either public or private companies is that they are extremely decentralized and hands-off, and allow management to keep running things (part of the rationale for acquiring Precision Castparts and Burlington Northern, for example, was that management would stay and would remain in charge, but would become better able to run the business without the pressure of public shareholders)… definitely not the way 3G works with public companies. But, so far, it works.
That’s quite enough preamble, right? What’s the company being teased here? This is how Jason Williams fires up our imagination:
“I’ve found his next potential target. It’s a by-the-book value investment. It’s in a perfect place to make shareholders a ton of mone