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Comment by geraldchan | Hacker News Reader

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geraldchan·

The fundamentals of this transaction will be outside the scope of understanding of the HN crowd.

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What are the fundamentals of this transaction?

Heinz is a 100 year brand and generates about $1.3B a year in after tax cash.

1.3 / 23 is less than 6 percent ROI, and buffet thinks this is a good investment. Granted, they may think the business can be streamlined, but I still think this says a lot about the capital glut that's driving down returns.

Ps: Most of this deal is financed with debt, so there buying 6% ROI with debt.

as long as the debt costs them less than 6% then free money

Berkshire Hathaway's biggest problem is finding productive investments on the scale of the cash they generate. There insurance float provides them with what is essentially interest free loans if they estimates losses well.

as long as (profit - cost of debt)/(invested capital) > (ROI on best alternative investment) then free money.

Low risk, low volatility 6% ROI isn't a bad investment at all, but I think smart money is on Buffett having an idea or two for increasing that number.

I think that's a little unfair. BH is buying Heinz for the same reason it buys as much Coca-Cola as possible.

Understanding value investing might be nice if you want to attract VC interest in your start up , taken that most start ups are bought by other companies and don't go IPO (if they don't fail)it might be interesting to understand the fundamentals ...

this one if brand identity for sure

Value investing and venture capital are about as different as investment strategies could be. Value investors don't usually companies that don't pay regular dividend streams, most tech companies (let alone start-ups) never pay revenue.

Why the blanket statement?

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