Lots of news out that the EU has approved 3G Capital + WB takeover of Heinz.
Just like when the deal was announced, I am seeing a lot of commentary about how he is paying 20 times earnings when he is supposed to be a value investor.
This seemed a little silly to me. Research I've done for US markets indicates that even in the cheapest value deciles you can't really avoid paying a higher multiple in years when the overall market is more expensive compared to years when the overall market is cheap.
But is Buffett really departing from his playbook? Heinz is a low beta (~0.53), large, quality name so it fits the universe criteria. What about value? Well the price certainly had been on the run, demonstrating some nice momentum and the announcement of the deal driving the price from $56 to >$70. I decided to plug some numbers into the Money Chimp "WB IV Formula" which I found from a quick google:
Even the most conservative numbers I plugged into the tool seemed to indicate that even at $70, HNZ was quite cheap. For example, estimating $3.10 for EPS, 0% growth in the short and long term, 100% certainty of outcome with a 3% risk free rate values the company at $103. EPS would need to decline by $1 to price such a conservative outcome to ~$70. Alternatively, using a risk free rate of 2% (approx value of US 10Y yield the day deal was announced) prices the company at $155. The interest rate would need to rise to 4.5% to price this outcome to ~$70.
So for me it doesn't really seem like a departure for WB.
I'm interested to hear what others with more experience in valuation have to say.