In 2008, Warren Buffett’s Berkshire Hathaway spent $US2.1 billion to help finance the $US23 billion takeover of Wrigley by mars Inc, the privately held confectionary and pet food giant.
Buffett’s Berkshire Hathaway picked up preferred stock paying an interest rate of 5% a year and took a 19.38% in Wrigley. It also lent Mars $US4.4 billion, which was repaid in 2013.
From yesterday (Thursday), the terms of that investment allowed Mars to start buying back half that stake – Mars accelerated the purchases and paid an undisclosed price for the Berkshire holding and will now consolidate it into parent.
Because Mars is privately held, financial details are scarce. We have no idea of the sale price or the financial of Wrigley or Mars. Buffett also didn’t say what he would do with the funds generated by the sale, but he will be hard pressed to get 5% a year from a highly rated company these days.
On Thursday, Mr Buffett said of his investment: “Both in working with the Mars family and the Mars-Wrigley management, it couldn’t have been a better experience from both a personal and financial standpoint.”
Mr Buffett still has interests in the food sector – he has a long-term holding in Coca-Cola, with a stake of a little more than 9%. He has also teamed up with 3G Capital to create the Kraft Heinz combination in 2014 as well as Burger King with Tim Hortons to create Restaurant Brands International.
Berkshire has long held a small interest in the confectionery sector through the small Californian company, Sees Candies.
When Berkshire bought it in 1972, See’s Candies had roughly $US30 million in sales and a profit of $US4.2 million. By this year See’s had sales of more than $US400 million and profits of around $US100 million. Buffett has said that Sees doesn’t need new capital, grows and has solid profit margins around 25%. he said since 1972, the company has returned more than $US 2 billion in pre tax earnings, and has used just over$US40 million in new capital.
But while he will take the Mars cash and use elsewhere, he is staring at a growing loss on Berkshire’s 9.7% (and his personal two million share holding) stake in the troubled Well Fargo bank.
Buffett has incurred a $US2.5 billion loss on its Wells holdings since September. 8, when the bank settled charges of falsifying up to 2 million customer bank and credit card accounts as part of a drive to boost business. Wells paid $US185 million in fines and restitution to the customers whose identities were stolen to create the fake accounts.
Wells shares have fallen more than 10% in that time and boosted Berkshire’s loss for the year on Wells Fargo stock to $US4.7 billion. That $US4.7 million loss nearly wipes out the $US4.8 billion gain on Kraft Heinz, Berkshire’s its best-performing stock this year. Well Fargo shares are down 17% so far in 2016.
