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Did Warren Buffett Consider Acquiring Kellogg, Heinz?

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At Berkshire Hathaway's annual shareholder meeting on Saturday, Warren Buffett said he recently walked away from a $22 billion dollar acquisition . So, what company was it? Taking into consideration Berkshire Hathaway's previous acquisitions, he would likely have paid a 10%-30% premium to the market price. This means that the target Buffett considered likely had a market price between approximately $17 billion and $20 billion. Within this range, some companies that stand out are:

Kellogg (NYSE: K), producer and marketer of cereal and other packaged foods, is trading at around $50.50, closer to its 52-week low of $48.10 than its 52-week high of $57.70. The company's stock experienced a decline of approximately 5% late last month after reducing guidance. The food producer trades at a price to earnings ratio of 14.91, lower than comparable companies General Mills (NYSE: GIS), which has a P/E of 16.41, and Kraft Foods (NYSE: KFT), which has a P/E of 19.72. These differences in P/E ratios do not appear to be explainable by differences in capital structure. Kellogg pays a healthy dividend yield of 3.42%. Kellogg's relatively low P/E ratio and high dividend imply that the firm might appeal to Buffett's value oriented strategy.

Heinz (NYSE: HNZ), producer and marketer of ketchup and other food products, has been fluctuating over the past year between $48.17 and $55.00, reaching its current price of around $53.50. Heinz's stock has underperformed the S&P 500 by almost 10% year to date. Heinz recently sold its European brand Sonnen Bassermann, perhaps indicating that it is not averse to transfers of ownership.

Baker Hughes Oil-Field Services (NYSE: BHI) is trading around $41.00 this morning, significantly lower than its 52-week high of $81.00, but near its 52-week low of $39.40. The firm's stock price declined more than 15% following negative earnings surprises in fiscal third and fourth quarters 2011. Last month, however, the company reported first quarter 2012 earnings of $0.86, representing a positive surprise of 7.50% over the analyst consensus estimate of $0.80. The firm's negative earnings surprises from last year may be leading to the stock trading at a discount.

American Electric Power Company (NYSE: AEP), a holding company for public utilities, is trading at near $38.50, placing it at a P/E of 11.62. This P/E ratio is lower than comparable companies Entergy Corporation (NYSE: ETR), which has a P/E ratio of 12.35, and The Southern Company (NYSE: SO), which has a P/E ratio of 17.78. All three companies have similar capital structures. American Electric Power Company's lower P/E ratio implies that firm might be attractive to value investors.

The $17 Billion to $20 Billion range also includes the following stocks, listed with their respective market capitalizations and industries:

Mkt Cap Short Name Industry

$ 19.9 b Chubb Corp-Property/Casualty Ins

$ 19.8 b Thermo Fisher Instruments-Scientific

$ 19.7 b Spectra Energy-Pipelines

$ 19.6 b Firstenergy C. Electric-Integrated

$ 19.2 b Phillips 66 Oil Comp-Integrated

$ 19.1 b Broadcom C. Electronic Compo-Semiconductors

$ 18.9 b Marathon Oil Oil Comp-Integrated

$ 18.8 b Equity Residenti REITS-Apartments

$ 18.8 b Pg&E Corp Electric-Integrated

$ 18.6 b Synthes Inc-Medical Products

$ 18.6 b Marsh & Mclennan-Insurance Brokers

$ 18.6 b Ecolab Inc-Chemicals-Specialty

$ 18.4 b Yahoo! Inc-Web Portals/ISP

$ 18.1 b Air Prods & Chem Chemicals-Diversified

$ 17.9 b Raytheon Co-Aerospace/Defense

$ 17.8 b Williams Partner-Pipelines

$ 17.8 b Discover Financi Finance-Credit Card

$ 17.4 b Hess Corp Oil Comp-Integrated

$ 17.4 b Cons Edison Inc Electric-Integrated

$ 17.3 b Lorillard Inc-Tobacco

$ 17.2 b Macy's Inc Retail-Regnl Dept Store

$ 17.2 b Schwab (Charles) Finance-Invest Bnkr/Brkr

$ 17.2 b Mead Johnson-Vitamins&Nutrition Prod

$ 17.2 b Cme Group Inc Finance-Other Services

$ 17.1 b Hcp Inc REITS-Health Care

Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.

Posted-In: Berkshire Hathaway Warren BuffetNews Management M&A Events Trading Ideas Best of Benzinga

 

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