Saturday, February 23, 2013

Update 4 -- Heinz: Sign of a Bubble?


Heinz: Sign of a Bubble?

I’ve got to quibble with James Stewart of the New York Times, once again[1].  Two weeks ago, Mr. Stewart wrote about the universally bullish assessment of Apple’s stock by analysts.  He lauded Carlo R. Besenius for issuing a sell recommendation.  I pointed out that Mr. Besenius might have been lucky, rather than insightful  (“Apple: The Prescient Call”).

In this morning’s column, he writes that the deal by Warren Buffet and HG Capital may be a sign that we’ve entered a merger and acquisitions bubble.  While much of the article provides useful insights into the conditions and behaviors that create merger euphoria, Buffet’s Heinz deal shouldn’t be the leading example.  First, Berkshire Hathaway didn’t buy the company outright.  Second, part of the financing will come from Berkshire’s purchase of a preferred issue that will pay 9%.  The deal structure suggests that Mr. Buffet is very cognizant of where we may be in the M&A cycle.  See “It’s Good to Be Warren Buffet: The Heinz Deal” for further


[1] http://www.nytimes.com/2013/02/23/business/mindful-of-bubbles-as-deal-making-boom-begins.html?pagewanted=1&_r=0&ref=business

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