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Buffett says not 'inconceivable' for Berkshire to further partner with 3G Capital

Christian Fernsby |
Warren Buffett said on Saturday it is not "inconceivable" for his Berkshire Hathaway Inc. to further partner with 3G Capital, which manages packaged food giant Kraft Heinz that has faced federal investigation into alleged procurement mishandlings.

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One of the major investments by Berkshire, Kraft Heinz was created by a merge of Kraft Foods and H.J. Heinz in 2015. Berkshire teamed up with Brazil's 3G Capital to buy Heinz in 2013.

Speaking to tens of thousands of shareholders at Berkshire's annual shareholders meeting, Buffett, chairman and CEO of Berkshire, said 3G's management of Kraft Heinz is good operationally, calling 3G co-founder Jorge Paulo Lemann a "marvelous human being."

While admitting that Berkshire "paid too much" for Kraft Heinz, Buffett, when asked about the possibility of further partnership with 3G, said, "It is not at all inconceivable that we could be partners in some transaction in the future."

Berkshire wrote off 2.7 billion U.S. dollars from its stake in Kraft Heinz in February, in light of the latter disclosing a massive 15.4-billion-dollar write-down related to an investigation by the U.S. Securities and Exchange Commission (SEC) into the company's "accounting policies, procedures, and internal controls related to its procurement function," according to Kraft Heinz.

Despite that, Berkshire is still Kraft Heinz's biggest shareholder, owning 26.7 percent of the company's outstanding shares, according to Berkshire's first-quarter report released Saturday.

Berkshire's first-quarter report showed the company's operating earnings, which do not include quarterly gains or losses from Berkshire's investments and derivatives portfolios, rose to 5.55 billion dollars from 5.29 billion dollars a year ago.

Meanwhile, its net earnings, which have become very volatile for Berkshire due to a change in accounting rule, stood at 21.7 billion dollars in the three-month period, compared with a 1.1-billion-dollar loss in the same period last year.

The new accounting rule asks public companies to account for unrealized gains or losses in stocks when reporting their net income.

Berkshire's first-quarter results, however, excluded its Kraft Heinz stake, as the latter has not yet filed its 2018 Form 10-K with the SEC. As a result, Kraft Heinz can't report first-quarter results to Berkshire, its biggest shareholder.

The fair value of Berkshire's investment in Kraft Heinz was approximately 10.6 billion dollars at the end of the first quarter, and 14.0 billion dollars at the end of the previous quarter, the first-quarter report said.

Kraft Heinz said in a March 15 statement that it "is working diligently and expects to file its Form 10-K in the coming weeks."

Buffett told reporters Saturday that it is "pretty unusual" for a company to not have filed its 10-K yet. "There's something going on," he said of Kraft Heinz.

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