Berkshire set to exit 28% stake in Kraft Heinz after rare Buffett blunder

Berkshire Hathaway, with new CEO Greg Abel in charge, has taken a formal step toward unwinding a rare misstep by Warren Buffett.

The conglomerate, which owns Geico insurance and BNSF Railway, registered its entire 27.5% stake in Kraft Heinz in a filing that clears the way for Berkshire to exit its position in the hot dog and macaroni-and-cheese maker. Berkshire is Kraft Heinz’s largest shareholder.

Shares of Kraft Heinz fell as much as 7.5% at one point in Wednesday trading following the news.

The move underscores Abel’s willingness to move on from a deal that has long stood out as a rare blemish on Buffett’s otherwise storied record. Kraft Heinz shares have plunged about 70% since the 2015 merger that created the ketchup-making giant, weighed down by shifting consumer tastes, rising costs and sluggish growth across core brands. Some of the loss has been offset with billions of dollars in dividends over the years, but last year Berkshire still took a $3.8 billion write-down on the value of its holding.

“We … view the timing of this sale as being reflective of Abel’s desire to clean up and pare down the investment portfolio early in his tenure,” Greggory Warren, senior equity analyst at Morningstar, said in a note.

The latest Berkshire filing also came as Kraft Heinz seeks to separate into two companies: one focused on sauces, spreads and shelf-stable meals and a second that includes North American staples like Oscar Mayer meats, Kraft cheese singles and Lunchables.

Buffett himself has acknowledged his frustration with how the merger he orchestrated a decade ago ultimately unraveled.

“It certainly didn’t turn out to be a brilliant idea to put them together, but I don’t think taking them apart will fix it,” Buffett, who remains Berkshire’s chairman, told CNBC last year.

The registration statement gives Berkshire the flexibility to reduce the position, rather than signaling an imminent sale, according to Stifel.

“The registration provides Berkshire Hathaway the ability to reduce its ownership stake; we believe transaction notifications are not required outside of quarterly 13F filings,” Stifel analysts wrote. “The next update is likely to be in mid-May, when Berkshire reports its first fiscal quarter activity.”

Stifel reiterated a hold rating on Kraft Heinz and a $26 price target, citing softer U.S. consumption trends and slower growth in emerging markets that could delay any revenue growth, even as the company continues to generate strong cash flow.

In 2015, Berkshire teamed up with Brazilian private equity firm 3G Capital to merge Kraft Foods with H.J. Heinz. 3G Capital quietly exited its Kraft Heinz investment in 2023, after years of periodically trimming its stake as the combined company struggled.