Warren Buffett is beginning to switch from the hands-off approach he took toward the firms he acquired over the past five decades.
He turned Berkshire Hathaway Inc. into the second-largest firm in the United States by buying businesses and letting their existing managements get on with running them.
But Wednesday’s takeover of Kraft Foods Group Inc., by H.J. Heinz Co., which Berkshire owns jointly with private equity firm 3G, signals a shift in strategy.
Buffett has found a way to outsource the dirty work of restructuring and lay-offs, the Financial Times reported.
Instead of buying companies at a discount in return for a promise to leave management alone, he is now happy to fund fully-priced acquisitions and back 3G’s executive team in making operational improvements, the report said.
Kraft faces job cuts and factory closures like those 3G has carried out at Heinz.
“Mr. Buffett’s investment style has evolved,” the newspaper quoted Cliff Gallant, an analyst at Nomura, as saying.
“He views himself as a portfolio manager and a hands-off chief executive. From 3G, he is learning that management can go in and add value and change an organization.”
Including the US$5.2 billion Berkshire is contributing to fund the Kraft deal, Buffett has paid US$9.5 billion for about 320 million shares in the combined company, which are now worth US$22 billion.
Gallant said the new deal is a good one for Berkshire, which gets a 25 per cent share in Kraft’s US$2.5 billion of dividend payments for its US$5.2 billion investment, as well as potential upside from cost savings achieved by 3G management.
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