What Does Warren Buffett See in H.J. Heinz Company (HNZ)?

But wait, there’s more! By implementing cost control measures, aggressive expansion into emerging markets, and by spinning off Heinz’ lagging frozen divisions, Buffett and Co. may very well double Heinz’ top line revenue, potentially resulting in a $500 million annual windfall for Berkshire and 3G. Increased revenue would allow Berkshire to recoup its entire investment in less than a decade, after which Berkshire may choose to either continue collecting those premiums on its Heinz preferred, or sell its stake in the company.

Berkshire also has a third, less reported option: It can exercise its $100 million in warrants, and seize majority control of Heinz itself.

Warren Buffett and retail investors don’t have the same problem. Heinz’ revenue would have to grow considerably to justify 3G/Berkshire’s offer of $72.50 per share, but that constraint applies only to common equity, not preferred shares. Berkshire Hathaway shareholders will receive their cut off the top regardless of whether Heinz hits its ambitious growth targets. On the other hand, if 3G’s growth plan for Heinz proves successful, Berkshire investors will be in for a windfall. So far from being a waste of Berkshire’s capital, it’s difficult to imagine a scenario in which Buffett could lose.

The article What Does Warren Buffett See in Heinz? originally appeared on Fool.com and is written by Jessica McCann.

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