FORTUNE -- Warren Buffett may end up putting more money into ketchup maker Heinz.
Last year, Buffett's Berkshire Hathaway (BRKA) bought the company with Brazilian investment firm 3G Capital. The deal essentially split the ownership of the company down the middle. Berkshire and 3G put up $4.25 billion each to buy the common shares of the company. And Berkshire put in another $8 billion for preferred shares, which paid a 9% dividend. 3G got the job of managing the company.
Some initially called the deal expensive -- particularly for Buffett, who is known as a value investor -- as it valued Heinz at 20 times expected earnings. Some speculated that Buffett only did the deal because of the large dividend he got on the preferred shares.
But in Berkshire's annual letter to shareholders, which was released on Saturday, Buffett goes out of his way to say that he expects Heinz to be a long-term holding for his company. In fact, he says he would be interested in upping his stake in Heinz, presumably at the same or higher price. And he alludes in his letter that he may have the chance. Buffett writes that "certain 3G investors" may be looking to sell part of their Heinz stake in the future. When they do, Buffett said he would be willing to buy up the shares. He also said Berkshire would be willing to discuss swapping its preferred shares for common stock at some point in the future. That would also increase Berkshire's ownership stake in Heinz.
"Though the Heinz acquisition has some similarities to a 'private equity' transaction, there is a crucial difference," Buffett writes in his letter. "Berkshire never intends to sell a share of the company."
The company has so far been a good investment, but not without some pain. 3G has laid off nearly all of Heinz top management and hundreds of its employees. That's made the deal an unusual one for Buffett. Berkshire rarely makes large management changes or layoffs when it takes over a company. Because of all the restructuring, Heinz lost $84 million in 2013.
Still, Buffett calls the operating results at Heinz "encouraging." And he has made money so far on the investment, though not much. Factoring in the dividends and Heinz's losses, Berkshire calculates that it has made $149 million on the deal so far, a 1.2% return on its investment. Clearly, Buffett thinks the investment will post better returns in the future.
Heinz's new CEO Bernardo Hees comes from Burger King and, before that, Buffett's buyout partner 3G. It's another move that's outside of Buffett's playbook.
FORTUNE -- In mid-February, when the deal to buy Heinz was announced, Warren Buffett gave Heinz's CEO a vote of confidence. "I think Bill Johnson has done a very good job of running the company," Buffett told CNBC.
Two months later, Johnson is out of a job.
On Thursday, MOREStephen Gandel, senior editor - Apr 12, 2013 11:54 AM ET
Warren Buffett makes an unconvincing case.
FORTUNE -- Shortly after Berkshire Hathaway announced plans to buy H.J. Heinz Co. (HNZ) for $28 billion, I suggested that Warren Buffett's well-documented disdain for private equity must have softened. After all, Berkshire (BRKA) was partnering on the deal with a private equity firm called 3G Capital.
So yesterday the question was put to Buffett, during an appearance on CNBC's Squawk Box. Here was his reply:
"It is a MOREDan Primack - Mar 5, 2013 4:34 PM ET
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Berkshire and 3G's $28 billion bid for the ketchup maker could be Warren Buffett's richest deal yet.
FORTUNE -- Part of the mystique, and down-home charm, of Warren Buffett is the belief that most of all he is always looking for a good bargain. Did he get one with Heinz? It's not so clear.
Buffett is best known for having bought up large stakes in companies like Coke (KO), Geico, Gillette and MOREStephen Gandel, senior editor - Feb 15, 2013 10:33 AM ET
Warren Buffett has teamed up with 3G Capital to buy Heinz. Yes, that's a private equity firm.
FORTUNE -- Warren Buffett is no fan of private equity, having said that buyout firms are short-term financial engineers who "don't love" the companies in which they invest. He also has bragged about how he never has bought a company from private equity firms.
So what are we to make of the fact that Buffett MOREDan Primack - Feb 14, 2013 3:30 PM ET
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