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Buffett, 3G to Buy Heinz: Is it Time for Investors to Play Catch-Up?


While the world frets over the market being overvalued, the most esteemed value investor in history is still buying. Warren Buffett's Berkshire Hathaway (BRK.A) and private equity firm 3G Capital announced an offer to buy condiment and bean maker H.J. Heinz (HNZ) for $72.50 a share, the equivalent of $28 billion. The price represents a 20% premium to where the stock closed yesterday, and a 19% premium from its all-time high.

Yahoo! Finance Senior Columnist Mike Santoli says gobbling up the number one Ketchup brand in the U.S. is consistent with a long-time theme. "He's turning cash into another enduring brand name," Santoli says in the attached video. If the deal closes Buffett will have partial or total control of Wrigley, Dairy Queen and a massive stake in Coca-Cola (KO).

What is unusual is Buffett's willingness to pay up for a company trading near all-time highs. This is a man famous, or infamous depending on who you ask, for extracting usurious terms from distressed companies. Buffett is able to get access to deals that others cannot and he's used his special standing to make billions for shareholders. This time the Oracle went straight to the market.

Then there's the curious inclusion of a private equity firm. Villified during the Presidential debates, private equity makes money by going into companies and ripping out cash and management. As a general rule, Buffett buys companies where he respects the existing management enough to leave them alone. Buffett didn't detail his intentions in regard to management changes, but suffice it to say, upper level execs at Heinz aren't likely to be slacking off after the company changes hands.

The biggest ripple from the deal is what it implies about the rest of the market. Consumer brands have been strong performers. Investing in a company near all-time highs is an indirect endorsement of sorts for the market as a whole.

"I think we have a pent up demand for deals," Santoli opines, citing fat balance sheets and the need for corporate America to buy growth. "I do think that's going to be a theme this year."