Options Trading in Heinz Prior to Berkshire’s Acquisition

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Feb 282013
 

I am quoted in a Bloomberg article (February 28) on the suspicious trading in Heinz call options one day before Berkshire Hathaway announced its planned acquisition of Heinz at a 20% premium to the previous day’s closing price:

Options trading often surges for legitimate reasons, such as when a trader speculates on an event, according to David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.

‘Highly Leveraged’

“It’s highly leveraged, so a small amount of money can give you a very high percentage rate of return,” Kass said in a Feb. 19 phone interview from College Park, Maryland. “Volume activity in options can pick up on rumors and speculation. Sometimes those rumors turn out to be true and sometimes not.”

The entire article is available at:

http://www.bloomberg.com/news/2013-02-28/buffett-betrayed-by-calls-shows-nobody-safe-from-leaks.html

 Posted by at 6:56 pm

Berkshire’s Portfolio Changes During Fourth Quarter of 2012

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Feb 172013
 

In its SEC 13-F filing for the fourth quarter 2012, Berkshire Hathaway revealed numerous changes to its portfolio.

The largest addition was an increase of $580 million to its position in Wells Fargo (WFC).   As a result, WFC has become Berkshire’s largest common stock investment with a value of $15.0 billion as of December 31, 2012.  Warren Buffett has held a large position in WFC since 1990, and has added to his position every year since 2005.  Other increases to existing positions include DaVita (DVA, +$375 million), General Motors (GM, +$250 million), DirecTV (DTV, +$225 million), and Wabco Holdings (WBC, +$150 million).

Berkshire also reported initial investments in Archer Daniels Midland (ADM, +$150 million) and Verisign (VRSN, +$140 million).

The largest reduction was in Kraft Foods (KRFT) and Mondelez (MDLZ).  KRFT is a fourth quarter 2012 spinoff from Kraft (KFT), and Mondelez (MDLZ) is the new name for the remaining businesses.  The combined reduction in Berkshire’s position in KRFT and MDLZ was $900 millon.  Berkshire’s remaining holdings in these two companies is valued at $400 million.

The portfolio changes to Wells Fargo, KRFT, and MDLZ are believed to have been made by Warren Buffett, since his initial positions generally exceed $1 billion, and these investments were made prior to the arrival of his portfolio managers, Todd Combs and Ted Weschler.  The other portfolio changes (less than $400 million) were apparently made by Combs and/or Weschler.

I was quoted in a Bloomberg article on this topic:

Most of the new holdings in the portfolio are coming from Todd and Ted,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, who has taken students to visit Buffett in Omaha”

The entire article is available at:

http://www.bloomberg.com/news/2013-02-14/berkshire-buys-verisign-adm-stakes-as-deputies-add-stocks-1-.html

This blog post has been published by Investing.com (formerly ForexPros):

http://www.investing.com/analysis/berkshire%E2%80%99s-portfolio-changes-during-fourth-quarter-of-2012-155658

 Posted by at 10:10 am

Berkshire Hathaway Buys Heinz

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Feb 142013
 

Berkshire Hathaway (with 3G Capital) is acquiring Heinz for $28 billion (20% premium) at $72.50 per share.  Berkshire is investing $12 1/2 – $13 billion ($4.5 billion in equity plus $8 billion in preferred stock) and will have a 50% equity stake.  Warren Buffett is still looking to invest up to $14 billion for another large acquisition.

Heinz is a typical company that Warren Buffett (Berkshire Hathaway) likes to acquire. It dominates the ketchup market and is well run.  Buffett had a very large investment in General Foods in the 1980’s.  It was subsequently acquired by Philip Morris in 1985.  Berkshire likes stable food companies which have “large moats” protecting their brands.  This results in a durable competitive advantage that Buffett seeks.  Berkshire’s largest equity holding since 1988 is in Coca-Cola.   It also has a large stake in Kraft.

I am quoted in a Bloomberg article on this topic:

Heinz “just comes to mind as almost synonymous with ketchup, just as Coca-Cola is almost synonymous with soda,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.

The entire article is available at:

http://www.bloomberg.com/news/2013-02-14/buffett-deal-highlights-fondness-for-snacks-ceding-management.html

 Posted by at 7:56 am