While Warren Buffett has said he’s had his fill of food company deals, some investors and analysts say his affinity for brand names and Omaha companies might mean an exception in the case of ConAgra Foods.
Buffett’s Omaha-based Berkshire Hathaway, they say, might be a willing buyer if ConAgra is willing to make a deal that would include valuable brands such as Chef Boyardee and Hebrew National hot dogs.
Others throw cold water on such an idea, saying a Berkshire-ConAgra deal won’t happen.
ConAgra wouldn’t comment on the prospect of a Berkshire deal. And it’s important to note that although some analysts and investors have surmised that such a tie-up would make sense, there are no signs that a deal is on the table. Berkshire Hathaway didn’t immediately respond to inquiries.
Omaha-based ConAgra is going through a major shake-up as shareholders amp up the pressure for the company to improve its profitability. Already on the selling block is the so-called private-label division that makes food sold under the names of supermarket brands.
Chief Executive Sean Connolly said in June that nothing is off the table when it comes to an overhaul of the business. If the company would sell its consumer foods unit, Buffett’s Berkshire Hathaway could be interested, some analysts and investors say.
The division houses company jewels such as Chef Boyardee, the category leader in canned pasta, according to brand and sales researcher Euromonitor International. ConAgra’s Hunt’s ketchup ranks second, behind Berkshire Hathaway-controlled Heinz, Euromonitor says. ConAgra’s Slim Jim meat snacks also rank second, according to Convenience Store Petroleum magazine, trailing Jack Link’s in 2014 market share.
“This is a logical acquisition candidate because of ConAgra’s brands and leadership positions in its markets,” said David Kass, a finance professor at the University of Maryland and a shareholder of Berkshire Hathaway.
Buffett has made some of his largest takeovers recently, with some centered on the food industry. He’s spent tens of billions since 2013 on food industry acquisitions, in collaboration with private investment partnership 3G Capital. The group spent $28 billion in 2013 to acquire H.J. Heinz & Co., maker of ketchup and pickles, and $10 billion this year to assist with Heinz’s merger with Kraft Foods, producer of Oscar Mayer bacon and the namesake macaroni and cheese.
“Buffett has loved the brand names and predictability of food companies,” said Andy Kilpatrick, a Berkshire shareholder and author of the multi-edition corporate biography “Of Permanent Value.”
“I’m sure Buffett knows the players well and would have the best info. It seems to me to be a real fit for Berkshire — at the right price,” Kilpatrick said of a ConAgra buy.
Buffett, however, said last month on CNBC that a deal for another big food company is unlikely anytime soon. The combination of Kraft and Heinz still is a work in progress, he said.
“At Kraft Heinz, we have our work cut out for us for a couple of years,” Buffett said on CNBC. “Frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all the work needed at Kraft Heinz.”
If Berkshire were interested in ConAgra — in part or whole — where the Omaha food company would fit in the conglomerate’s family would be an open question, said author and shareholder Kilpatrick. It could be folded into the Kraft Heinz organization or be left alone to operate intact, he said. Some combination of the two also is possible, he said.
The Omaha Effect also shouldn’t be discounted, Kilpatrick said.
“I think Buffett would love to buy anything right in Omaha,” he said.
Why? Buffett has done it before, and he has said being from Omaha counts for at least a little something.
Omaha-based companies purchased by Berkshire include insurer National Indemnity in 1967, Nebraska Furniture Mart in 1983, Borsheims jewelers in 1985, the Omaha World-Herald Co. in 2011 and Oriental Trading Co. in 2012.
All told, Berkshire’s Omaha payroll sits at around 8,000, rivaling Union Pacific, surpassing that of First Data and roughly even with health care firm CHI Health among the city’s largest private employers.
“Obviously, I’ve got a bias toward Omaha companies,” Buffett told The World-Herald in a 2013 interview. “If we hadn’t been in Omaha, we would not have ended up with the Omaha companies we have.”
When a business owner proposes selling to Berkshire, Buffett said, “I give them an extra point for being in Omaha.”
Others see the prospect of a Buffett-led purchase of ConAgra as remote.
“Yes, Buffett loves brands, but he really loves premium brands like American Express and Coke,” said Ted Bridges, whose Omaha-based Bridges Investment Management owns about 40,000 ConAgra shares, according to recent 13F filings with the Securities and Exchange Commission. The firm also owns about 300 shares of Berkshire Hathaway class-A stock and about 200,000 shares of Berkshire class-B stock, according to the SEC filings.
“ConAgra’s brands are good, not great, as they do not rise to the level of many of the flagship Heinz and Kraft brands,” Bridges said. His company has about $1.7 billion under management.
Dave Novosel, a bond analyst at credit-ratings firm Gimme Credit, said he wonders if a combined Kraft Heinz would be able to take on another big company.
Heinz merged with Kraft just this year, and combining companies so large is rarely an overnight event. ConAgra has about $16 billion in annual revenue, dozens of brands and thousands of employees nationwide.
“You’ve probably got to digest Kraft Heinz first,” Novosel said.
Berkshire Hathaway already controls vast supermarket shelf space through Kraft Heinz.
ConAgra would add to that its own offerings, which include Hunt’s tomato sauce, Van Camp’s baked beans and Pam cooking spray.
Such a command of grocery aisles could raise some concerns as to whether federal regulators would allow one company to own so many grocery store brands.
Patrick Woodall, research director at Food & Water Watch, a nonprofit environmental group, opposes many big food mergers, saying they limit consumers’ choices at the supermarket and give farmers fewer buyers for their products.
Would Food & Water Watch protest a Berkshire Hathaway buy?
“I would be hard-pressed to second-guess the Oracle of Omaha from here,” he said, though he noted “few firms controlling more of the grocery landscape is disadvantageous to consumers.”
Last month, Buffett consummated his largest-ever deal, buying Oregon-based Precision Castparts for $33 billion, paying shareholders a 21 percent premium for buying the whole company all at once as opposed to soldiering on as a minority shareholder in the maker of airplane parts and other industrial goods.
Were Berkshire actually interested in buying ConAgra, the Omaha food company likely would fetch about $21 billion if it were to sell as a whole.
That’s taking into account ConAgra’s recent share price — $41.50, times 433 million shares — and the about 20 percent premium — or the amount over the stock price — Berkshire has paid for other recent acquisitions.
“This equals the amount Buffett describes as an ‘elephant’ that he is seeking,” said Maryland professor Kass.
After the Precision Castparts deal, Berkshire Hathaway has about $43.5 billion in cash, or more than enough to spend $21 billion on ConAgra and still have $20 billion in the bank, an amount Buffett says allows him and Berkshire shareholders to sleep well.
There is also the matter of reciprocal interest: Buffett has said throughout the addition of dozens of operating companies to Berkshire Hathaway’s roster he is interested only if they are interested.
In other words, no hostile deals, a position he reiterated Tuesday on CNBC.
World-Herald staff writers Barbara Soderlin and Steve Jordon contributed to this report.
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
Contact the writer: 402-444-3197, email@example.com