How Warren Buffett is Making Money These Days: H.J. Heinz Company (HNZ), Wells Fargo & Company(WFC)

Buffett has invested in a combination of preferred stocks and warrants in General Electric Company (NYSE:GE), Goldman Sachs Group, Inc. (NYSE:GS) and Bank of America Corp (NYSE:BAC), in recent years, and in the three cases he seems to have done some very convenient deals.

GE was a $3 billion investment including preferred stock with a 10% yield and warrants for $3 million in common stock at a price of $22.25. Since General Electric is already trading near 23.5, it looks like those warrants have been a smart decision from Berkshire’s perspective.

The Goldman Sachs deal was for $5 billion in preferred stock yielding 10% and warrants for 43.5 million shares at 115 per unit. Those warrants are already comfortably in the money as Goldman is trading above $157 per share nowadays.

Bank of America was the most profitable of the three; Berkshire invested $5 billion in preferred shares yielding 6% and warrants for 700 million shares at 7.14.  At the current price of $12 per share for Bank of America, this was a particularly sweet deal for Buffett.

These deals were negotiated in times when GE, Goldman and Bank of America were in desperate need of capital, so I wouldn’t expect the same kind of profitability from the Heinz warrants. However, Buffett has proven that he understands how to structure these things, so he will likely make extra money from the warrants too.

Bottom Line

When first looking at Heinz valuation in this acquisition, this doesn’t seem like a particularly smart move by Buffett. But by analyzing the financing and the structure of the deal, it becomes much clearer that he is still making fantastic investments to the benefit of Berkshire shareholders.

The article How Warren Buffett is Making Money These Days originally appeared on Fool.com and is written by Andrés Cardenal.

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