Warren Buffett, Other Kraft Heinz Institutional Investors Left With Mustard On Their Shirts

Kraft Heinz Co. KHC crashed nearly 28 percent Friday after the company disclosed an SEC investigation and announced a major dividend cut. The news shaved $16.3 billion off Kraft Heinz’s market cap, and no investor is more disappointed than Warren Buffett.

Buffett’s Bad Day

Prior to Friday’s nosedive, Kraft was the sixth-largest public holding of Buffett’s Berkshire Hathaway, Inc. (NYSE: BRK-A) (NYSE: BRK-B), which was dragged down by 1.8 percent itself Friday.

As of the end of 2018, Berkshire held more than 325 million shares of Kraft Heinz. On Friday, the value of that stake — assuming Buffett hasn’t bought or sold additional shares in 2019 — dropped from around $15.6 billion to just $11.2 billion, a paper loss of around $4.4 billion.

Buffett acquired his 325 million shares via unconventional means, joining with partner 3G Capital to finance the merger of Kraft and Heinz back in 2015. The combined company officially began trading under the ticker KHC on July 6, 2015 at a price of $71 per share. In nearly four years since, Buffett’s stake is down in value by about 51 percent, or roughly $11.8 billion in value lost.

Others Impacted

Buffett wasn’t the only high-profile institutional investor who got burned Friday. According to the latest 13F filings, billionaire David Shaw’s hedge fund D.E. Shaw & Co. reportedly held 4.5 million shares of the stock. Kenneth Griffin’s Citadel Advisors held 2.8 million shares and Jim Simons’ Renaissance Technologies held 1.3 million shares. Mark Holowesko’s Holowesko Partners held 1.2 million shares.

Together, the collection of four billionaires may have endured paper losses exceeding $123 million Friday, not including any hedges they may have had on their stakes.

Other investment banks and institutions are taking a hit as well. The following are Kraft Heinz’s five largest institutional investors along with the sizes of their holdings and paper losses Friday, according to WhaleWisdom:

• 3G Global Food Holdings: 595.5 million shares, $7.97-billion loss.
• Berkshire Hathaway: 325.6 million shares, $4.35-billion loss.
• Vanguard Group: 47.5 million shares, $636-million loss.
• BlackRock, Inc. BLK: 37 million shares, $495-million loss.
• Magellan Asset Management: 33 million shares, $441-million loss.

How Will Buffett React?

Berkshire investors will be anxiously awaiting Buffett’s annual shareholder letter, which is expected to be released over the weekend. Any sign that he plans to unload Berkshire's massive Kraft Heinz position could lead to another large leg down for the stock. Conversely, if Buffett decides to buy Kraft Heinz "when there's blood in the streets," other buyers could follow suit.

"It's a non-trivial possibility!" Seabreeze Partners Management founder Doug Kass said in a Friday post, referring to the possibility of Buffett adding to his Kraft Heinz stake.

"Warren 'knows' Kraft Heinz well (he had been on the board for several years) and is capable of making a quick decision (remember the decision to invest in Bank of America in the bath tub?). He certainly is emboldened with a (record) large and burgeoning cash horde." 

Berkshire reported $104 billion in cash as of the end of the third quarter of 2018.

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