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Kraft Heinz is poised to break itself up, acknowledging what investors have known for years: Their merger was a dud.
The 2015 deal united some of America’s most beloved grocery brands and was blessed by some of Wall Street’s biggest names, including Warren Buffett. But the company’s sales and share price floundered — the latter propped up largely by Buffett’s refusal to bail out of the stock. (Two Buffett-appointed directors stepped off Kraft Heinz’s board in May, fueling chatter that a Berkshire Hathaway without Buffett, who retires later this year, might be less sentimental.)
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What went wrong? Buffett admitted that Heinz overpaid for Kraft, and 3G’s vaunted budgetary axe turned out to be useless against decades of accumulated bloat. The company spent months privately and a memorable 48 hours publicly trying to buy Unilever, which stoked investors’ concerns that it couldn’t thrive alone. But mostly, Americans’ tastes changed. Increasingly health-conscious consumers turned away from processed foods like bologna and Kool-Aid and swapped ketchup for sriracha.
The company’s troubles dented 3G’s reputation as a screw-turning operator, which never quite recovered. And they might have bruised Buffett’s reputation, except that he came out $5 billion ahead, thanks to his special dividends.