The $28 billion purchase of ketchup king H.J. Heinz (NYSE:
) by Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) and
Brazilian financier Jorge Paulo Lemann has had a predictable
result. Traders and investors want to know who is next; what
company will be Buffett's next elephant?
Buffett has an enviable problem: Berkshire's cash hoard. Even
after committing $12.1 billion for Heinz, Berkshire still has $15
billion left to go shopping with, and that number grows by the
according to Bloomberg
By his own admission, Buffett's thirst for big deals, or
"elephants" as he calls them, is not quenched. That likely means
traders and investors are already trying to figure out what
company could be next on Berkshire's shopping list.
been previously noted
ranging from the Market Vectors Coal ETF (NYSE:
) to the Industrial Select Sector SPDR (NYSE:
) are home to some potential Berkshire targets.
Following the Heinz deal, another ETF has jumped to the
forefront of the Berkshire deal speculation conversation. That
ETF is the PowerShares Dynamic Food & Beverage Portfolio
). Shares of PBJ, which is home to almost $111 million in assets
under management, have jumped 2.2 percent in the past week and
are now trading at an all-time high.
The ETF's recent bullishness is due in large part to the Heinz
deal because that stock is
is PBJ's largest holding, accounting for 5.7
percent of the fund's weight
. To be fair, some of PBJ's recent upside has come by way of
Constellation Brands (NYSE:
), another top-10 holding in the ETF, making a deal with
AnheuserBusch InBev (NYSE:
) that gives the former rights to sell Corona and other Grupo
Modelo beer labels in the U.S.
Still, near-term ebullience pertaining to PBJ is likely to be
fueled by speculation that the ETF is home to another Buffett
acquisition candidate. Including Heinz, PBJ is home to 30 stocks.
Of the remaining 29 stocks, eliminating unlikely Berkshire
targets is not difficult.
) is too big and Berkshire already owns a massive equity position
in Coca-Cola (NYSE:
). Likewise, Berkshire already owns a position in Kraft (NASDAQ:
) and Buffett previously voiced displeasure with that company's
management team regarding the Cadbury acquisition. Monsanto
), PBJ's second-largest holding, would probably require a price
tag north of $60 billion, more than Buffet might be willing to
Additionally, several other PBJ constituents, including the
ETF's three discretionary names, really do not fit the bill as
Buffett stocks, either for equity ownership or outright purchase.
Add those three to Heinz, Kraft, Monsanto and Pepsi, subtract
from 30 and there are still 23 PBJ holdings from which Buffett
At least two remaining PBJ holdings could be deemed
"legitimate" Buffet targets and two others would not be
The legitimate contenders are General Mills (NYSE:
) and Hershey (NYSE:
). Shares of Cheerios maker General Mills have surged almost six
percent in the past week, an uncommon move for a stock with a
beta of just 0.16 against the S&P 500, on speculation the
food giant could be attractive to Buffett.
Bloomberg reported as much, noting acquiring Minnesota-based
General Mills would be on par with the deal for railroad operator
as Berkshire's biggest purchase.
Hershey makes sense as well. Berkshire already owns See's
Candies and in 2008, Buffett's firm partnered with Mars on a $23
billion deal for
gum maker Wm Wrigley Jr
. The issue with Hershey is whether or not the Hershey Trust,
which controls the majority of voting shares, would be willing to
sell anyone, even Buffett.
In addition to General Mills and Hershey, Kellogg (NYSE:
) and J.M. Smucker (NYSE:
) offer the types of brands and operate in the prosaic businesses
that are often attractive to Buffett. However, it must be noted
Kellogg and Smucker would be the two PBJ holdings that fall into
the "stretch" category of possible Berkshire buys. Combined,
those stocks represent about 7.6 percent of the ETF's weight.
More importantly, Hershey and General Mills are PBJ's third-
and fourth-largest holdings, respectively, combing for 10.1
percent of the ETF's weight. That says as long as Berkshire
deal-making rumors remain prevalent in the marketplace, PBJ could
keep moving higher.
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