Yesterday was a bad day because Warren took one of my long-term investments, Heinz (HNZ), to take the company private. He paid a price of $72.50 and gave me a total return including FX-Gains of 24 percent. The total purchase price is 23.25 billion. Most of the value goes on Buffett’s accounts.
Warren buys Heinz at a P/E of 22.73 and a yield of 2.84%. All price ratios are not cheap especially when you look at mid-term growth rates. But more interesting is the alternative in a low interest environment. I believe that the current yield covers a big part of the long-term loan of the deal and as a private company, there are much more possibilities.
However, as I heard the news yesterday, I needed to search alternatives for the free money. I decided to pull the trigger for a buy of 100 Campbell Soup (CPB) shares. My CPB stake is worth a little bit more than the old Heinz position. I am really worried about the lower possibilities on the market. In my niche, good investment vehicles getting rare and I must focus or concentrate more money on less stocks.
The whole industry realized a quick cash injection yesterday. I don’t know why exactly. Mostly because Warren's buy is a clear signal from one of the most trusted investors. Beyond, there are now $23 billion of additional cash in the market which must be invested on the rest of the industry players. As a result, prices for all competitors must increase.
Heinz was bought for an EV/EBITDA ratio of 13x. CPB has a ratio of 9.64x. The current P/E is 16.41 and the yield amounts to 3.0 percent. I still own several major players from the industry. CPB was a lack in my portfolio. That’s the main reason.