Will Burlington Be Buffett's Last Big Buy?
OMAHA, Neb. (
) --
Berkshire Hathaway
(BRK.B) - Get Berkshire Hathaway Inc. Report
is moving ever-closer to its acquisition of
Burlington Northern
(BNI)
, but that doesn't mean
is done dealing.
Last week,
Berkshire Hathaway issued $8 billion in senior notes to help finance the Burlington deal, and in the process, lost its last AAA rating.
Losing the AAA rating from Standard & Poor's was an event that was anticipated by the market, and it was a rating agency decision that Buffett said cost him a little bit of his pride, but cost no more than that.
A little bit of multi-billionaire pride is not much to pay for what is already in the ledgers of capitalist history as Warren Buffett's "all-in wager on the U.S. economy." Before we close the book on Buffett's wheeling and dealing with the Burlington railroad, however, there may still be some unfinished M&A business for Berkshire Hathaway.
While the Burlington Northern acquisition grabbed all the positive headlines toward the end of 2009, Buffett was also vocally negative on
TheStreet Recommends
Kraft's
(KFT)
planned acquisition of British confectioner
Cadbury
(CBY)
. Berkshire owns a considerable chunk of Kraft, and Buffett let it be known that he did not want to see that chunk of Kraft shares diluted by a rash M&A decision on the part of Kraft management.
Buffett, revered for his restraint and grandfatherly profile among a sea of ruthless capitalists, went further than many expected when he scolded Kraft management for offering too much in its hostile bid for Cadbury. Buffett has always said he invests in a company like Kraft because he trusts the management team, but Buffett seemed less than trusting in the way Kraft was going about its pursuit of Cadbury. There were reports that personal Buffett investment banker Byron Trott was involved in the Kraft maneuvering to an extent beyond what Berkshire investors expected.
In the first place, those who would choose to view Buffett as a mild-mannered, bridge-playing, doting old sage of the markets are traficking in a fictional character. As one long-time Berkshire Hathaway investor, Frank Betz of Carret Zane Capital Management, said, "Don't be fooled. I have it on good authority from long-term observers that Warren Buffet can get plenty rough in the clenches."
Regardless, Kraft is pushing ahead with its acquisition of Cadbury -- and notably issued bonds to finance the deal last week alongside Buffett's bond deal to finance the Burlington Northern purchase.
Is Buffett likely to get into the M&A clenches again? It can be as messy as a barnyard brawl, but just last week Buffett filmed a video for operating subsidiary
CTB
, a livestock equipment company, making reference to his 100th birthday in 2030. So the Oracle of Omaha may have 20 years of dealing in him left yet.
More specifically, since Buffett was less than pleased with Kraft's handling of the chocolate war for Cadbury, a good question is whether Buffett has a sweet deal in reserve that could even top the consummation of Kraft's confectionary dreams?
In 2008, when private confectioner
Mars
bought Wm. Wrigley Jr. for $23 billion, the deal was backed by a $2 billion equity position in Wrigley by Berkshire Hathaway. Buffett already owns San Francisco-based
See's Candies
.
While Buffett usually moves alone in M&A deals, at the time of the stake in the Mars-Wrigley transaction, market watchers noted that Buffett may have been taking the first steps in making a long-term overture to privately held Mars -- as big and respected a brand as it gets in the kind of industry that Buffett knows very well.
Notably, at the time of the Mars-Wrigley deal in April 2008, rumors were already rampant that it would lead to a wave of M&A in the candy space, and that Cadbury was a likely target for a company like Kraft. It has taken close to two years for the Kraft/Cadbury rumor to come true, so will it just be another year or two before Mars is the latest operating subsidiary of Berkshire Hathaway?
Of this notion, Carret Zane Capital's Betz said, "Buffett is and has been very friendly with the Mars people, and if there ever were a private company that looked like it would be a match made in heaven to slide into Berkshire, in my mind, that is what I think about Mars. It's the 800 pound gorilla outside the Berkshire tent."
Another long-time Buffett investor, Paul Lountzis of Lountzis Asset Management, said that in the past Buffett has named Wrigley as one of the few global brands he really admires. Lountzis said that Mars is exactly in line with the Buffett model of businesses that he understands, and businesses that will be viable in the long run. "Mars' products and services are all in Buffett's sweet spot," Lountzis said, adding, "it's the perfect kind of Buffet company and he would probably love to own it."
For the Mars family, there could be benefits, in terms of their long-term planning and succession issues, of being part of a diversified stock like Berkshire Hathaway. "Berkshire would offer a good home for the Mars wealth," Lountzis said.
Of course, Berkshire Hathaway has its own succession issues -- even if Buffett lives to celebrate his 100th birthday and go hog-wild at a celebration with the crew of livestock company CBT in 2030.
There is also the issue of valuation. Just because Mars is one of the brands that Buffett says he really admires, along with Wrigley and
Coca-Cola
(KO) - Get Coca-Cola Company (The) Report
-- which Berkshire also has a stake in -- admiration for Mars may not extend to what the Mars family believes their privately held company is worth.
There are sweet spots that would need to be reached in valuation and succession planning that may not be obvious for either Berkshire Hathaway or the Mars family.
Still, it is not impossible to imagine an M&A marriage of the privately held confectioner and new railroad magnet, with Burlington Northern train cars not just full of coal and inter-model freight, but stacked with Mars bars and M&Ms as they chug across the continent.
In light of all this, we ask
TheStreet
readers: Do you think Buffett is done making "all-in wagers" after Burlington, or does his M&A sweet tooth still crave M&Ms? Take our poll below to learn the consensus of
TheStreet
-- and don't forget to leave a comment for Grandpa Warren after you do.
-- Reported by Eric Rosenbaum in New York.
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