Buffett Holds Steady as Kraft Heinz Preps for Split

Even Warren Buffett occasionally gets served a cold one, and this time, it’s slathered in ketchup. Kraft Heinz, once the pride of the pantry and a crown jewel of Buffett’s portfolio, is now sizzling low. And as investors seek a lifeline, the company is preparing a corporate split that appears more like damage control than culinary innovation. From Lunchables to Layoffs, and Mac & Cheese to market misery, this story’s got everything but a happy ending.

Back When This Deal Was Still Hot

In 2013, Buffett’s Berkshire Hathaway and 3G Capital teamed up to acquire Heinz in a saucy $28 billion deal (debt included). Then came the mega-merger with Kraft Foods in 2015, a $49 billion power move that combined nostalgic brands like Oscar Mayer, Velveeta, and Kraft Singles with the king of condiments. Berkshire pumped in $9.8 billion, and 3G brought the scissors, slashing costs and dreaming of Unilever takeovers. That dream evaporated in 2017, when a $143 billion offer for Unilever was rejected, triggering investor doubts and signaling the beginning of Kraft Heinz’s identity crisis. Fast forward a few years, and the kitchen’s a mess.

The Cheese Slid Off the Cracker

By 2019, the cracks were impossible to ignore. Kraft Heinz posted a staggering $15.4 billion write-down on its two biggest brands, Kraft and Oscar Mayer. That wasn’t just a red flag; it was a five-alarm brand meltdown. Consumer tastes had shifted, and the company’s innovation pipeline was drier than saltine. Sales have stagnated, Product appeal has faded, and while oat milk and hummus have taken over millennials’ shopping carts, Kraft Heinz has stuck with processed cheese and potted meats. The result? A 70% share price drop since its 2017 peak. Today, Kraft Heinz is reportedly cooking up a breakup plan: spinning off its slower-growing grocery unit (Kraft, Oscar Mayer, Velveeta) and retaining its higher-margin “Taste Elevation” assets, including Heinz ketchup, Philadelphia cream cheese, and Lea & Perrins. But don’t mistake this for a bold pivot. It’s a last-ditch casserole cobbled together from whatever’s left in the fridge.

Source: FT

“Taste Elevation” or Just Reheated Leftovers?

Let’s dish the numbers:

• Kraft Heinz stock is trading around $27, significantly down from its peak of $90.
• The market cap is now $33 billion, while the enterprise value hovers around $51 billion.
• Net debt exceeds $18 billion, much of which will likely burden the slower-growing grocery spinout.
• Revenues are expected to decline 3% in 2025.
• BofA sees dis-synergies wiping out up to 7% of total sales.
• BofA and Morgan Stanley remain skeptical: “We do not see significant upside,” said BofA, while Morgan Stanley noted “the stock will find support” only until details emerge.

Meanwhile, TD Cowen values the sauces/spreads unit at $29.5 billion and the grocery arm at $25 billion, which barely exceeds the current enterprise value. In other words, the math isn’t spicy.

Kellanova 2.0 or Kraft’s Last Call?

Kraft Heinz is clearly taking a page from the Kellanova playbook. Kellogg’s 2023 split created a “sexy” snacks arm (Pringles, Cheez-It) and a cereal orphan (WK Kellogg). Mars acquired the snacks unit for $36 billion, while Ferrero recently acquired the cereal business for $ 3.1 billion. Big paydays all around. However, Wall Street is uncertain whether Kraft Heinz can recreate the magic. Its grocery brands are considered tired. Oscar Mayer’s equity isn’t sizzling. And even the condiments unit might face antitrust pushback if McCormick or Unilever were to make a move. Still, both segments could tempt private equity, especially the cash-flow-heavy grocery side. The problem? Heavy debt and low growth. This might be a "tasty treat" for investors, but only if someone else is willing to clean the kitchen.

The Buffett Balance Sheet

Buffett’s $9.8 billion investment is currently worth approximately $8.8 billion, but Berkshire has generated $6.3 billion in dividends. Technically, he’s net positive. But in Buffett’s world, “better than flat” isn’t a brag. Had he put that same cash in an S&P 500 ETF, the returns would be far more robust. And for someone who once said, "Time is the friend of the wonderful business," this one has tested friendship.

Final Bite

Kraft Heinz was supposed to be a fortress of American staples, a dividend-paying juggernaut with global scale. Instead, it’s become a masterclass in what happens when cost-cutting eclipses innovation, and when nostalgia isn’t enough to fuel growth. The planned breakup might revive shareholder interest in the short term. But long-term? The flavors are fading. For Buffett, this isn’t a total wipeout. But in his nearly unblemished investing record, Kraft Heinz might go down as one of the rare sour notes. Even the Oracle of Omaha can overcook a deal once in a while.