Sat May 3, 2014 4:19pm
(Reuters) – Warren Buffett on Saturday said Berkshire Hathaway Inc would team up again with 3G Capital on more transactions, perhaps very large ones, despite criticism of the Brazilian investment firm’s decision to cut thousands of jobs at HJ Heinz & Co.
“I think 3G does a magnificent job of running businesses,” Buffett said at Berkshire’s annual meeting. “We’re very likely to partner with them, perhaps on some things that are very large.”
Berkshire had nearly $49 billion of cash as of March 31 and doesn’t pay a dividend, leaving Buffett and his deputies to look for capital-spending opportunities and takeovers.
Smead Capital CEO Bill Smead told Reuters Insider that Berkshire may be eyeing “a huge acquisition” potentially worth around $58 billion, after Buffett’s comments regarding 3G Capital.
“He’s built up a huge pile of cash – I think $28 billion in excess of what they need,” Smead said. “And Charlie (vice chairman Charles Munger) said, ‘Well, we can borrow $30 billion on top of that’, that’s $58 billion. That would be a huge acquisition. Now, that might cause a few people that have companies that size to call them. Remember, they don’t do hostile deals. So he opened up some realms today that were new in that respect.”
Mario Gabelli, chairman and chief executive officer of Gamco Investors Inc, said Buffett should consider acquiring General Mills, Inc.
“In (Buffett’s) annual report, he gives you a couple of dots. One of the dots was very fundamental. He said ‘Look, I learned that the model that I used on Heinz could be duplicated’,” Gabelli said.
“What is out there that is a $20 billion-$30 billion acquisition that you can have someone else manage? Why not something like General Mills? Which is cereal, which has been around for about 100 years, where there is pricing power, where there is population is going the right way – and he can put a lot of money to work.”
Berkshire contributed $12 billion toward the more than $23 billion purchase of Heinz, but gave 3G day-to-day control of operations. Some critics have said 3G’s job cuts do not reflect Berkshire’s typical values toward people who work at companies it acquires.
“We have not enforced, or attempted to enforce, nor do we wish to enforce, a strong discipline in every subsidiary as to whether they have a few too many people or not,” Buffett said. “A great many don’t.”
Munger, 90, said Berkshire has never “loved over-staffing.”
Buffett responded that the approach to minimizing personnel applies more to Berkshire’s main office in Omaha – Buffett said just 24 people work with him there – than to the company’s businesses, which at year end employed more than 330,000 people.
Most subsidiaries are “managed on a lean basis, but that’s not true of everyone we’ve been involved with over the years,” Buffett said.