Buffett says he ‘overpaid for Kraft’ business, was ‘wrong in a couple of ways’ about the investment

Warren Buffett Monday morning acknowledged some mistakes in one of Berkshire Hathaway Inc.’s most high-profile purchases, one that has resulted in recent paper losses.

On Monday, the Oracle of Omaha said he “overpaid” for his company’sBRK.A, +1.08%BRK.B, +0.92%  investment in Kraft Heinz Co. KHC, -1.01% which saw its worst daily decline on record last week after a number of disclosures that slammed the packaged-food giant’s shares.

Late Thursday, Kraft Heinz wrote down the value of some of its biggest brands, including Oscar Meyer, by $15.4 billion, disclosed an investigation by the Securities and Exchange Commission into its accounting practices, and slashed its dividend by 36%.

“I was wrong in a couple of ways about Kraft Heinz,” Buffett told CNBC during Monday’s interview. Berkshire acquired Kraft business in 2013 jointly with Brazilian private-equity company 3G Capital and two years later merged it with HJ Heinz. He said “we paid $100 billion in tangible assets. So for us, it has to earn $107 billion, not just the $7 billion that the business employs.”

On Friday, Kraft shares shed 27.5%, booking its worst daily decline in its history, even as the Dow Jones Industrial Average DJIA, +0.62% the S&P 500 index SPX, +0.58% and the Nasdaq Composite Index COMP, +0.85% enjoyed firm gains on the session.

Stumbles for the packaged-goods company come amid a shift in consumer trends toward healthier options, with declines on Friday resulting in more than $4 billion in losses for Buffett’s Berkshire Hathaway, one of the biggest owners of Kraft.

Still, Buffett told CNBC that he viewed Kraft as a “wonderful business,” and argued that it is hard for rivals to compete with the food giant.

Kraft Heinz contributed a $2.7 billion loss to Berkshire in 2018, compared with adding $2.9 billion to its earnings in 2017, according to the investment conglomerate’s most recent public filing.

Berkshire’s stake in Kraft Heinz has been the same since the third quarter of 2015, according to SEC filings. Before that, filings showed ownership of just 192,666 shares of Kraft Foods Group Inc. and 578,000 shares of Mondelez. Since Sept. 30, 2015, Krafts’s shares have now lost about half their value.

According to a separate report on CNBC, Kraft was weighing a sale of its Maxwell House coffee business, and has hired investment bank Credit Suisse to explore its options.

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