Buffett buys into Heinz

Warren Buffett said his Berkshire Hathaway Inc was willing to invest $12.1 billion alongside 3G Capital in a deal for HJ Heinz Co because of his faith in the buyout firm led by Jorge Paulo Lemann.

"They are extraordinary managers," Buffett said on May 4 at Berkshire's annual meeting in Omaha, Nebraska, where the company is based. "We stretched a little because of that."

Berkshire and 3G reached a deal in February valued at about $23.3 billion to buy ketchup-maker Heinz, agreeing to pay 20 percent more than the closing price before the acquisition was announced. Berkshire gets an equity stake of about $4.1 billion, as well as warrants and $8 billion in preferred shares paying a 9 percent annual dividend.

The billionaire chairman and chief executive officer of Berkshire said the deal is designed to give 3G better returns than his firm if Heinz does well. 3G, which has overseen companies such as Burger King Worldwide Inc, will run operations at Pittsburgh-based Heinz.

"It was an absolutely fair deal," Buffett said. "I said, 'I'm in'."

Lemann, 73, Brazil's wealthiest man, is a founder of 3G Capital and previously led the $52 billion merger between Anheuser-Busch Cos and InBev NV in 2008 with partners Marcel Telles and Carlos Alberto Sicupira. Buffett, 82, and Lemann sat on the board of razor-maker Gillette Co. Buffett said they discussed the Heinz deal in Golden, Colorado, in December.

Focusing on 'Big Four'

Buffett, who passed on the chance to buy $5 billion of Goldman Sachs Group Inc shares at below-market prices, said he's taking a smaller stake in the bank as he focuses on his top holdings.

The lower stake for Berkshire is "the amount of money we would like to have in Goldman," Buffett told Bloomberg Television in an interview on May 3 in Omaha, Nebraska, after his company's annual meeting. "Otherwise, we would have been putting a great many billions of dollars in and that's not an investment that we anticipate being in our big four, but it's an investment we're happy to have."

Berkshire holds stock valued at more than $10 billion each of Coca-Cola Co, Wells Fargo & Co, International Business Machines Corp and American Express Co. Buffett said last year that he wanted to keep a balance in his portfolio among companies in different industries and that San Francisco-based Wells Fargo is his favorite bank.

"There's a limit to how much I would want in banks compared with the whole portfolio," he said. "I like loading up on the one I like best."

Buffett in March struck a deal to settle Goldman Sachs warrants granted at the height of the 2008 financial crisis. As New York-based Goldman Sachs's stock has risen, Berkshire's paper profit on the contracts climbed to about $1.3 billion at the May 3 close.

Paper profit

Goldman Sachs and Buffett said that the bank agreed to give him an amount of stock equivalent to his average paper profit in the 10 trading days before the warrants expire on Oct 1. The deal reduces some risk for Berkshire, which would have had to spend about $5 billion for all 43.5 million shares it had the option to buy.

Buffett, 82, said the deal doesn't preclude him from adding more shares of the bank, which he praised in a March statement as a firm whose leaders he has admired since the 1940s. Goldman Sachs has climbed 14 percent this year after rallying 41 percent in 2012 in New York trading.

Asked by Liu what would cause him to purchase additional shares, Buffett answered that he might buy if "it gets cheaper".

Next CEO

Buffett, the leader of Berkshire Hathaway Inc since the 1960s, said the company's next chief executive officer will bolster the company's reputation as a source of stability in times of crisis.

"Berkshire is the 800-number when there's really sort of panic in markets," Buffett said at the company's annual meeting in Omaha, referring to first digits used for toll-free telephone calls in the United States.

Buffett injected $5 billion into Goldman Sachs Group Inc during the financial crisis of 2008 and made a $5 billion bet on Bank of America Corp in 2011 after the lenders' stock slumped. The deals gave Berkshire fixed returns on preferred shares along with warrants that allowed Buffett to benefit from rebounds in the banks' stocks.

Doug Kass, the investor betting on a decline of Berkshire's stock, said Buffett's reputation helped him arrange the deals with companies seeking to restore market confidence. He asked if the next CEO will be able to strike similar agreements.

Buffett said his successor will have access to even more capital as Berkshire grows. There will probably be times of turbulence when there are limited optional sources of liquidity, giving a future Berkshire leader the chance to make investments on favorable terms, Buffett said.

Berkshire brand

"When that happens when I'm not around, it becomes even more attached to the Berkshire brand," Buffett said.

Investors have speculated about who might replace Buffett at the top of the firm he and Vice-Chairman Charles Munger, 89, built into a business valued at more than $260 billion. The CEO, who's also Berkshire's chairman and largest shareholder, has said his roles will be divided once he's no longer leading the company.

Buffett said that Berkshire's board is "solidly in agreement" as to who should be the next CEO. He didn't identify the individual.

Todd Combs and Ted Weschler, former hedge-fund managers who were hired in the last three years, will oversee Berkshire's investments, Buffett has said. The portfolio includes the largest equity stakes in Coca-Cola Co and Wells Fargo & Co.

The billionaire has also said his son Howard, 58, a Berkshire director since 1993, could be non-executive chairman of a board that also includes Microsoft Corp co-founder Bill Gates. The younger Buffett has said he would protect Berkshire's culture of giving managers autonomy to run their businesses.

"You don't want a CEO who's going to change that and drive managers away," Howard Buffett told Bloomberg Television in an interview that aired on Feb 8. "That's probably one of the key parts of it making sure that part of the culture remains intact. And people that are best suited to run the business run the business."