Warren Buffett, whose Berkshire Hathaway Inc. (A:US) joined 3G Capital last year in a $23.3 billion takeover of ketchup maker HJ Heinz Co., said he’d welcome more deals with the buyout firm.
“We’re very likely to partner with them, perhaps on some things that are very large,” Buffett said yesterday at his company’s annual meeting in Omaha, Nebraska. “3G does a magnificent job of running businesses.”
Jorge Paulo Lemann’s 3G runs operations at Heinz and has replaced executives while announcing plant closures and thousands of job cuts. Buffett provided financing on the deal, including $8 billion for preferred shares that pay a 9 percent annual dividend.
The arrangement varies from Buffett’s usual approach of taking control of companies and leaving management in place. Buffett, who is on Heinz’s board, was asked yesterday whether it would make sense to hire a 3G manager at Berkshire.
“There’s no question that it’s a different style than Berkshire, and I don’t think it would pay to blend the two,” answered Buffett, 83.
Buffett also affirmed his confidence in the U.S. economy, said there was no reason to worry about an accounting error at Bank of America Corp. (BAC:US) and predicted an increase in activist investing as he took questions for about five hours.
Berkshire doesn’t pay a dividend, leaving the billionaire and his deputies to look for capital-spending opportunities and takeovers. The BNSF railroad, acquired in 2010 in Buffett’s largest deal, has been investing in its network and adding locomotives.
Berkshire Hathaway Energy, led by Greg Abel, will have more opportunities to pursue takeovers, Buffett said. Abel completed the $5.6 billion acquisition of NV Energy, Nevada’s largest electric utility, in December and announced a deal May 1 to buy SNC-Lavalin Group Inc.’s AltaLink for about $2.9 billion to expand in electricity transmission in western Canada.
“We are finding things to do that sop up the cash,” said Buffett, who is Berkshire’s chairman and chief executive officer and the world’s third-richest man.
The AltaLink deal was an exception for Berkshire, in that it is outside the U.S. Buffett said he was disappointed that he hadn’t made more acquisitions overseas. He told investors once again about his confidence in the U.S., rebuffing one shareholder who blamed President Barack Obama for mismanaging the economy.
“Anybody that thinks American business is not doing well should just look at corporate profits,” Buffett said.
Berkshire announced May 2 that first-quarter net income slipped 3.8 percent to $4.71 billion. Profit in 2013 was a record $19.5 billion. The cash pile climbed to $48.9 billion (A:US) as of March 31, compared with the $20 billion that Buffett says he prefers to guarantee liquidity.
Buffett also said he was confident in Bank of America (BAC:US), the lender that announced April 28 that it halted a planned dividend increase after finding a mistake in a stress-test submission to the Federal Reserve. Berkshire injected $5 billion into the company in 2011 and holds preferred shares and warrants in the second-largest U.S. lender.
“That error they made does not bother me,” Buffett said. “It doesn’t change my feeling about Bank of America or its management.”
Buffett and Vice Chairman Charles Munger, 90, were more critical of activist investors, because of their short-term goal of driving up stock prices, then selling. Money managers including Bill Ackman and Carl Icahn have sought to influence management teams by taking stakes then pushing for changes to reward shareholders. Hedge funds that employ that strategy are attracting more money because they appear to Wall Street to be successful, Buffett said.
“I don’t think it will go away, and I think it scares the hell out of a lot of managers,” he said.
Berkshire has employed a more passive approach to its stock holdings (A:US), and rarely speaks out in public against managers at the companies in which it invests. Some of its largest equity stakes, including one in Coca-Cola Co. (KO:US) valued at more than $16 billion, have been in the portfolio for decades.
Buffett abstained on a vote over Coca-Cola’s plan for executive pay last month even though he considered the package excessive. He said yesterday that “I don’t think going to war is a very good idea in most situations.”
Munger said the trend toward activism will continue for several years.
“What’s stopping it?” he said. “I don’t think it’s good for America.”
While Buffett and Munger answered most of the questions, they gave shareholders more of a chance to hear from some other managers. Matt Rose, the executive chairman of BNSF Railway, and Berkshire Hathaway Energy’s Abel each took to the microphone at different points to answer questions about their businesses.
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