Berkshire Hathaway Inc. (BRK.B): How Will This Brand Progress With The Buffett Backing?

The valuation seems fair when looking at the group and comparing its valuation to Kellogg. Packaged food competitor Kellogg trades at about 11.4 times FY13 earnings and is negatively impacted from taxes versus the benefit that Heinz has had recently. It has lower, but still significant sales exposure (15%) to emerging markets. However, Kellogg does have a lower operating margin of 11% compared to 12.4% at Heinz. That said, the businesses are somewhat different since Kellogg has such a large presence in cereals, an area in which Heinz is not a player.

Conclusion

The shareholder vote to approve the deal is expected to go smoothly and the deal should close in 3Q13. The impact on the landscape of the industry is somewhat minor at this point. As noted earlier, it could result in more deals if Heinz divests certain business. Heinz may also start to add to its portfolio with strong financial backing from Berkshire Hathaway Inc. (NYSE:BRK.B). Also, the premium the industry trades at versus the S&P is not likely to expand due to further speculation on acquisitions. Berkshire Hathaway Inc. (NYSE:BRK.B) has participated in many transactions and investment opportunities, such as this example.

The article How Will This Brand Progress With The Buffett Backing? originally appeared on Fool.com and is written by Mike Thiessen.

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