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Buffett downplays value clash between Berkshire, cost-cutting 3G

Published 2017-05-06, 03:44 p/m
© Reuters.  Buffett downplays value clash between Berkshire, cost-cutting 3G
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By Jonathan Stempel

OMAHA, Neb., May 6 (Reuters) - Warren Buffett on Saturday downplayed suggestions that Berkshire Hathaway (NYSE:BRKa) Inc's BRKa.N partnerships with Brazil's 3G Capital, a renowned cost-cutter, undermined Berkshire's own value system.

Speaking at Berkshire's annual meeting in Omaha, Nebraska, Buffett said, "there is a good chance we will do more, and perhaps bigger things" with 3G, which was co-founded by fellow billionaire Jorge Paulo Lemann and which with Berkshire controls food company Kraft Heinz Co KHC.O .

But he acknowledged disliking imposing the kinds of deep cuts, including the loss of many thousands of jobs, for which 3G is known.

"Change is painful for a lot of people, and I would rather spend my days not doing that sort of thing," he said. "But I think it is absolutely essential to America that we become more productive."

The 3G firm is known for "zero-based budgeting," where managers must periodically justify all their expenses, and cost controls such as requiring photocopies to be double-sided.

Berkshire and 3G jointly bought H.J. Heinz Co in 2013 and merged it with Kraft Foods Group two years later.

Buffett also helped finance 3G's merger of the Burger King and Tim Hortons chains to create Restaurant Brands International Inc QSR.TO .

More recently, Berkshire and 3G worked together on Kraft Heinz's proposal to buy European food company Unilever NV ULVR.L UNc.AS for $143 billion, only to be turned down.

Buffett revealed on Saturday that Berkshire and 3G, which together own 51 percent of Kraft Heinz, had each been prepared to devote $15 billion of cash to the transaction.

He said Berkshire prefers buying companies that are already efficient, and that 3G is not alone in trying to slash costs at companies that may be less efficient.

"The 3G people do it very fast, and they're very good at making a business productive with fewer people," he said. "But we have been doing that in every industry."

Charlie Munger, Berkshire's vice chairman, concurred, saying at the meeting he found no "moral fault" in 3G's approach.

Buffett noted that he has had to oversee job cuts himself, citing job losses at the original Berkshire Hathaway textile business, which shut down 20 years after he took it over.

"We fired 2,000 people over time ... at the textile operation," he said. "It didn't work."

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