Locked-and-Loaded: Buffett Ready for Another Elephant Following Heinz (HNZ) Deal
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Is Buffett satisfied for now following the $23 billion acquisition of Heinz (NYSE: HNZ) announced on Thursday?
Absolutely not.
The deal, which will cost about $12.1 billion in cash for Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), will whittle-down the $47 billion in cash that Berkshire reported holding at the end of 2012. Buffett commented yesterday that he likes to retain about $20 billion in cash at the end of a year, meaning there is currently about $15 billion in the war chest for another purchase. Add in cash flows from operations this year and the available funds for acquisitions could grow another $20 billion to $35 billion.
What's more is that Buffett said to CNBC that he was "ready for another elephant." With the cash pile growing daily, there's no question that another large M&A deal could come before the end of 2013 and range upwards of $15 billion. Given that he likes business that are "simple," with good ROE and consistent earnings power while using little to no debt, what might some candidates be?
The first company that springs to mind is General Mills (NYSE: GIS). With its noted cereal business, as well as ventures in yogurt and other staples, the company also has ROE of 22.7 percent while boasting operating cash flow of over $2.5 billion.
W.W. Grainger, Inc. (NYSE: GWW) might be another. ROE is at 24 percent while total debt is comparatively svelte at $564 million.
Hershey (NYSE: HSY) is also in the mix. Return on invested capital is 28.6 percent, better than most stocks in the S&P 500 index. Bloomberg notes today that Berkshire already owns See's Candies and helped to finance the takeover of Wm. Wrigley by Mars in 2008.
The following is a list of Bloomberg-compiled targets that Buffett might eye.
Criteria:
Market Capitalization from $15 Billion to $35 Billion
Capital Expenditures / Net Fixed Assets > 10%
5-Year Average Growth in ROIC in Highest 50%
P/E Ratio < Average Company Value in Home Market
Return on Common Equity > 10%
*Excludes Banks, Brokerages, Asset Managers, Technology,
Biotechnology Companies
Aetna Inc. (NYSE: AET)
Agilent Technologies Inc. (NYSE: A)
Capital One Financial Corp. (NYSE: COF)
Cardinal Health Inc. (NYSE: CAH)
CBS Corp. (NYSE: CBS)
Cigna Corp. (NYSE: CI)
Cummins Inc. (NYSE: CMI)
Estee Lauder Cos. (NYSE: EL)
FedEx Corp. (NYSE: FDX)
General Mills Inc.
Hershey Co.
Johnson Controls Inc. (NYSE: JCI)
Lockheed Martin Corp. (NYSE: LMT)
Marathon Petroleum Corp. (NYSE: MPO)
McKesson Corp. (NYSE: MCK)
Mosaic Co. (NYSE: MOS)
Northrop Grumman Corp. (NYSE: NOC)
Paccar Inc. (Nasdaq: PCAR)
Plains All American Pipeline LP (NYSE: PXP)
Public Service Enterprise Group Inc. (NYSE: PEG)
Raytheon Co. (NYSE: RTN)
Time Warner Cable Inc. (NYSE: TWX)
TJX Cos. (NYSE: TJX)
VF Corp. (NYSE: VFC)
Viacom Inc. (Nasdaq: VIAB)
Williams Partners LP (NYSE: WMB)
W.W. Grainger Inc.
Yum! Brands Inc. (NYSE: YUM)
Absolutely not.
The deal, which will cost about $12.1 billion in cash for Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), will whittle-down the $47 billion in cash that Berkshire reported holding at the end of 2012. Buffett commented yesterday that he likes to retain about $20 billion in cash at the end of a year, meaning there is currently about $15 billion in the war chest for another purchase. Add in cash flows from operations this year and the available funds for acquisitions could grow another $20 billion to $35 billion.
What's more is that Buffett said to CNBC that he was "ready for another elephant." With the cash pile growing daily, there's no question that another large M&A deal could come before the end of 2013 and range upwards of $15 billion. Given that he likes business that are "simple," with good ROE and consistent earnings power while using little to no debt, what might some candidates be?
The first company that springs to mind is General Mills (NYSE: GIS). With its noted cereal business, as well as ventures in yogurt and other staples, the company also has ROE of 22.7 percent while boasting operating cash flow of over $2.5 billion.
W.W. Grainger, Inc. (NYSE: GWW) might be another. ROE is at 24 percent while total debt is comparatively svelte at $564 million.
Hershey (NYSE: HSY) is also in the mix. Return on invested capital is 28.6 percent, better than most stocks in the S&P 500 index. Bloomberg notes today that Berkshire already owns See's Candies and helped to finance the takeover of Wm. Wrigley by Mars in 2008.
The following is a list of Bloomberg-compiled targets that Buffett might eye.
Criteria:
Market Capitalization from $15 Billion to $35 Billion
Capital Expenditures / Net Fixed Assets > 10%
5-Year Average Growth in ROIC in Highest 50%
P/E Ratio < Average Company Value in Home Market
Return on Common Equity > 10%
*Excludes Banks, Brokerages, Asset Managers, Technology,
Biotechnology Companies
Aetna Inc. (NYSE: AET)
Agilent Technologies Inc. (NYSE: A)
Capital One Financial Corp. (NYSE: COF)
Cardinal Health Inc. (NYSE: CAH)
CBS Corp. (NYSE: CBS)
Cigna Corp. (NYSE: CI)
Cummins Inc. (NYSE: CMI)
Estee Lauder Cos. (NYSE: EL)
FedEx Corp. (NYSE: FDX)
General Mills Inc.
Hershey Co.
Johnson Controls Inc. (NYSE: JCI)
Lockheed Martin Corp. (NYSE: LMT)
Marathon Petroleum Corp. (NYSE: MPO)
McKesson Corp. (NYSE: MCK)
Mosaic Co. (NYSE: MOS)
Northrop Grumman Corp. (NYSE: NOC)
Paccar Inc. (Nasdaq: PCAR)
Plains All American Pipeline LP (NYSE: PXP)
Public Service Enterprise Group Inc. (NYSE: PEG)
Raytheon Co. (NYSE: RTN)
Time Warner Cable Inc. (NYSE: TWX)
TJX Cos. (NYSE: TJX)
VF Corp. (NYSE: VFC)
Viacom Inc. (Nasdaq: VIAB)
Williams Partners LP (NYSE: WMB)
W.W. Grainger Inc.
Yum! Brands Inc. (NYSE: YUM)
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