Buffett Watch

  Thursday, 25 Apr 2019 | 1:45 PM ET

Buffett says investors would be served just as well buying an S&P fund as his own company's stock

Posted ByThomas Franck
Warren Buffett
David A. Grogan | CNBC
Warren Buffett

Renowned stock picker Warren Buffett believes investors would be as well off simply buying the stock market as they would owning a stake in Berkshire Hathaway.

"I think the financial result would be very close to the same," Buffett told the Financial Times when asked whether it would be better to put a share of Berkshire or a share of the S&P into a child's investment account.

Buffett, the chairman and CEO of Berkshire with a personal worth north of $80 billion, has served as a model for a generation of investors with a frugal, bargain-based buying strategy. That's begotten both a no-frills investing philosophy as well as modest Midwestern lifestyle marked by regular trips to McDonald's, a taste for Coca-Cola and folksy business mantras.

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  Thursday, 25 Apr 2019 | 9:29 AM ET

Warren Buffett: This is the best way to put cash in the pockets of people who need it

Berkshire Hathaway chairman Warren Buffett has plenty of money. The so-called "Oracle of Omaha" — a nod to both his hometown and his prowess as an investor — is worth $86 billion on Thursday, according to Forbes.

And that's a whole lot more than most people have. In fact, if you add up the fortunes of Amazon'sJeff Bezos, Microsoft's Bill Gates and Buffett, those three billionaires have more wealth than the entire poorest half of the population in the United States, according to an October report from progressive Washington, D.C.-based think tank Institute for Policy Studies.

But Buffett has an opinion on how to put more cash in the hands of Americans who need it the most: He recommends expanding the Earned Income Tax Credit.

"The Earned Income Tax Credit is the best way to put money in the pockets of people that don't fit well under the market system, but that are perfectly decent citizens," Buffett told Yahoo Finance's editor-in-chief, Andy Serwer, in an interview published Monday.

The Earned Income Tax Credit (EITC) is designed to "benefit for working people with low to moderate income," according to the U.S. Internal Revenue Service. "EITC reduces the amount of tax you owe and may give you a refund."

Various criteria have to be met for someone to benefit from the EITC, including earning income from working or owning or running a business or a farm and having no more than $3,500 in investment income for the tax year. The full details on the current requirements for the EITC vary depending on whether a person is single or married and how many children are claimed, according to the U.S. Internal Revenue Service.

For 2019, the maximum amount of credit a person can receive via the EITC ranges from $529 (with no qualifying children) and $6,557 (with three or more qualifying children), according to the IRS. In a 2015 Wall Street Journal op-ed Buffett suggested increasing dollar amounts for the credit, especially for those who earn the least. He also suggested switching from an annual payment to monthly installments, among other changes.

If you are "just a good citizen, raise nice kids, help in the neighborhood and everything else, but you don't have market-related skills," you should still be able to afford to live, Buffett tells Serwer, pointing out that the United States government has access to enough resources to provide for everyone. Case in point, says Buffett: the per person gross domestic product in the U.S. is close to $60,000.

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  Wednesday, 24 Apr 2019 | 10:05 AM ET

Disney vs Netflix: Here's which would have made you richer if you invested $1,000 10 years ago

Media giants Disney and Netflix have both proven to be extremely successful companies over the years, and each landed a spot on the Forbes list of the world's most valuable brands in 2018. Now the two are in a battle to win over the world's binge-watchers, as Disney recently announced the November debut of its streaming platform, Disney+.

Which company's stock would have made you richer if you invested 10 years ago, though? The answer is Netflix — by a lot. According to CNBC calculations, a $1,000 investment in Netflix on April 23, 2009, would be worth more than $58,000 as of April 23, 2019, for a total return of over 5,700%.

If you put $1,000 in Disney over the same period, your investment would be worth about $7,700, a total return of over 680%. During the same time period, the S&P 500 returned 320%.

The difference between the two investments comes to more than $50,000.

While Netflix would have made you more money, any individual stock can over- or underperform and past returns do not predict future results. After Disney's announcement, in fact, Netflix shares fell 4.5%. (The company reported quarterly earnings per share and revenue last week that beat estimates, though, and the stock is up more than 34% year to date.)

CNBC: Disney stock as of April 23, 2019

Disney+ will start at $6.99 a month, or $69.99 a year, and allow users to stream much-loved material from its archives as well as original content hooked to the Pixar, Marvel and "Star Wars" universes. It will be cheaper than Netflix, which recently raised its prices to $12.99 per month for its standard plan.

Disney's chairman and chief executive officer, Bob Iger, told CNBC that he was "optimistic" about the streaming service "because of the content, the user interface and the price."

Jim Cramer, host of CNBC's "Mad Money," said he was excited about Disney based on Disney+. "It's a reasonable price. You have an unbelievable library. We have all bought these," he said. "I've bought every single property of Disney. [For] my kids, it just was kind of a rite of passage."

Iger, he added, "has transformed this company back to a growth stock in a way that people are saying, 'Finally, I've got one with earnings, with a balance sheet, with a great CEO; I don't have to risk it anymore.' That's what this story is." Overall, he concluded, "Wow. Wow. Big."

Not everyone is sold on Disney's plan, though. Some analysts believe that the company's goals are too lofty and that it will be difficult for its streaming service to disrupt major players like Amazon, Apple and, most notably, Netflix.

CNBC: Netflix stock as of April 23, 2019

"We do not view Disney+ as a strong alternative to Netflix," Matthew Thornton, a tech analyst at bank holding company Suntrust, said in a note. "Disney+ features family content, while Netflix offers a much broader range of content with the majority of the most-searched content on the platform."

J.P. Morgan analyst Doug Anmuth agreed, saying in a note that "while we expect Disney+ will likely be the most competitive streaming offering to Netflix, we still do not view it as a major threat to Netflix subscriber numbers given Netflix's quality & quantity of content."

Netflix had more than 148 million total subscribers as of February, and some analysts predict that number will grow to 335 million by 2028. By comparison, Disney+, which will officially start streaming in mid-November, expects to reach 60 million to 90 million subscribers by 2024.

If you're looking to get into investing, seasoned investors like Warren Buffett suggest you start with index funds, which hold every stock in an index, meaning they're automatically diversified and tend to be low cost. Plus, because they fluctuate with the market, they're typically less risky than picking individual stocks.

Here's a snapshot of how the markets look now.

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Don't miss: Coke vs Pepsi: Here's which stock would have made you richer if you invested $1,000 10 years ago

Video by Claire Nolan

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  Wednesday, 24 Apr 2019 | 8:02 AM ET

Berkshire Hathaway is not buying utility PG&E, Warren Buffett says, knocking down earlier report

Posted ByThomas Franck

Berkshire Hathaway is not buying PG&E, Warren Buffett told CNBC's Becky Quick.

This knocks down a report earlier Wednesday that had caused shares of the troubled utility to surge. PG&E shares jumped more than 25% after Bloomberg News circulated a report from publication SparkSpread, which apparently said the Buffett-led conglomerate was in talks to buy the utility. They were still up 3.5% shortly before Wednesday's opening bell.

Buffett, chairman and CEO of Berkshire Hathaway, told CNBC that the report was "100% not true" and that he "would know" if Berkshire Hathaway was in talks to acquire the company. PG&E declined to comment for this story.

PG&E, California's largest investor-owned utility, could face $30 billion in potential liabilities from wildfires in 2017 and 2018.

The company's share price plunged late last year as the deadliest fire in the state's history — thought by many to be a product of PG&E equipment — ravaged the area surrounding Paradise, California. The disaster killed 86 people and destroyed about 14,000 homes. The stock sank again in January after the company announced plans to pursue Chapter 11 bankruptcy in January.

Still, some of Wall Street's top hedge funds — including D.E. Shaw, Baupost Group and David Tepper's Appaloosa Management — all held stakes in the San Francisco-based utility by the end of the last year, after the wildfire. While the rationale for each hedge fund's position in the company is likely different, theories range on why some have stuck with the embattled name.

A source familiar with the matter confirmed to CNBC earlier this year that Seth Klarman's Baupost Group had spoken to insurance companies about buying claims against PG&E as a type of hedge. Others could be betting on a generous relief package from state lawmakers.

Earlier this month, California Gov. Gavin Newsom released several initiatives for how to confront future wildfires. The governor's report, developed by a "strike force," charged PG&E to promote better safety practices and emphasized the need to lessen liability for the state's utilities.

"As long as electrical lines run through tinder-dry forests, California can mitigate but not eliminate utility-sparked fires," the governor's report read. "No single stakeholder created this crisis, and no single stakeholder should bear its full cost."

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  Wednesday, 24 Apr 2019 | 7:49 AM ET

Melinda Gates: Capitalism needs work, but it beats socialism and the US is 'lucky' to have it

Capitalism vs. socialism? For Melinda Gates, the choice is simple.

"What I know to be true is I would far rather live in a capitalistic society than a socialist society," Gates said in an interview with CNBC's Becky Quick that aired on "Squawk Box" on Wednesday. "I think when we stop and think of what we have from a capitalistic society, we have to remember what we actually have."

Gates' comments come as the American political system is embroiled in a debate about socialism and capitalism. Several Democratic lawmakers and presidential candidates have called for sweeping changes to a system they say is responsible for growing inequality and division within the country. President Donald Trump has accused them of embracing socialism, which he says would lead to economic ruin in the U.S.

Without mentioning the political debate, Gates, who co-chairs the Bill and Melinda Gates Foundation along with her husband, Microsoft co-founder Bill Gates, defended the U.S. system. Yet she also acknowledged the need to address the gaps between the rich and the poor.

Gates also said U.S. residents are "lucky," and that people living in developing countries "want to live in these types of capitalistic societies."

Several American billionaires have argued that the modern version of capitalism isn't working. Wealthy business leaders such as Warren Buffett, Jamie Dimon, Ray Dalio and Bill Gates have called for fixes to widening economic inequality and the lack of public education funding. Some are advocating for public-private partnerships and higher taxes on the wealthy to address widespread income inequality.

These business leaders have also condemned arguments for socialism. Dimon, CEO of J.P. Morgan, told shareholders this month that socialism "inevitably produces stagnation, corruption and often worse," but acknowledged there are flaws with capitalism and that it should be combined with a strong social safety net.

In her CNBC interview, Gates called for proper government regulation and a solid tax system to address capitalism's gaps.

"I think we all do better as a globe when countries can grow from low, to middle income, to high income," she said. "And so I think we need to look at our system and say, 'OK, what are the great things about it? And what are the things that, at this point in time, we need to adjust and change?'"

Despite these issues, she said, American capitalism is the envy of much of the world.

"When I go to places like Malawi or Tanzania or Senegal, they say they all want to live in America," Gates said. "We are lucky to live here. They want to live in these types of capitalistic societies. And we just need to tune it and get it right."

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  Tuesday, 23 Apr 2019 | 4:54 PM ET

Kraft Heinz's new CEO inherits challenges left behind by cost-cutting

Posted ByLauren Hirsch
  Tuesday, 23 Apr 2019 | 4:05 PM ET

Kraft Heinz weighs sale of Ore-Ida frozen potato business

Posted ByLauren Hirsch

Tater Tot maker Ore-Ida is the latest brand Kraft Heinz is considering shedding as it scrambles to pay down debt and restructure its business following a disastrous quarterly report.

Kraft Heinz has hired investment bank Evercore Partners to prepare a potential sale of its Ore-Ida brand, people familiar with the situation told CNBC. The brand could fetch roughly $1.5 billion to $2 billion, the people said, cautioning the process is still early and valuation is subject to buyer enthusiasm.

While Kraft Heinz's focus is on the frozen potato maker, it would also consider a sale of its entire frozen food business, which includes brands like Smart Ones and Devour, should there be significant buyer interest, the people said.

Likely buyers could include Conagra, frozen potato company Lamb Weston, as well as private equity firms, said the people.

The people requested anonymity because the information is confidential. A spokesperson for Kraft Heinz declined to comment.

The potential divestitures come as Kraft Heinz is in the midst of its most significant executive shakeup since its formation. On Monday, the consumer giant announced that CEO Bernardo Hees will step down on June 30.

Hees, 49, will be replaced by Miguel Patricio, who worked for two decades at beer giant Anheuser-Busch InBev, including as chief marketing officer from 2012 through last year.

The incoming CEO said his focus will be on improving Kraft Heinz's speed, organic growth, brand building and making the company more consumer focused. He would not comment on potential mergers or divestitures.

But outgoing CEO Hees had said the company is weighing divestitures to pay down debt. Kraft Heinz needs to slim its portfolio in order to bring leverage down to three times EBITDA, rather than the four times at which analysts say it is currently pegged. Analysts note it has $3 billion of debt coming due in 2020, which may have to be refinanced.

Top priority for Kraft Heinz is getting rid of brands it believes are particularly vulnerable to the private label goods now being pushed by retailers. While consumers may be willing to pay a bit more for products for which they have strong brand affinity, like Heinz ketchup, the same cannot be said for other products, like frozen potatoes.

As a whole, the frozen food industry has undergone a transformation in the past several years. As shoppers have focused on fresh food, frozen food had developed a reputation as off-trend, but companies like Conagra and Green Giant owner B&G Foods eventually realized they could revitalize frozen food brands. They have focused on ease of use and the nutritional benefits of freezing fresh food. Kraft Heinz has had its own success with Devour frozen meals and sandwiches.

Maxwell House coffeeand Breakstone's cottage cheese and sour cream are among the other brands that Kraft Heinz is evaluating, CNBC has reported.

Kraft Heinz shares were up less than 1 percent in after-hours trading. The stock, which has a market value of more than $40 billion, has fallen 42% over the past year.

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  Monday, 22 Apr 2019 | 3:58 PM ET

Warren Buffett: This is how to be successful

At 88, billionaire investing guru Warren Buffett is often considered the Yoda of the investing world. He's the chairman of Berkshire Hathaway and is currently worth $86 billion, according to Forbes.

But his best wisdom on how to achieve success in business has nothing to do with profit and loss statements or stock portfolios.

"By far the best investment you can make is in yourself," Buffett recently told Yahoo Finance editor-in-chief Andy Serwer.

First, "learn to communicate better both in writing and in person, they increase their value at least 50 percent. If you can't communicate to somebody, it's like winking at a girl in the dark. Nothing happens," Buffett told Serwer. "You have to be able to get forth your ideas."

Second, start taking care of your body and your mind when you are still young, Buffett said.

"If I gave you a car, and it'd be the only car you get the rest of your life, you would take care of it like you can't believe. Any scratch, you'd fix that moment, you'd read the owner's manual, you'd keep a garage and do all these things," he said.

"You get exactly one mind and one body in this world, and you can't start taking care of it when you're 50. By that time, you'll rust it out, if you haven't done anything. So it's just hugely important. And if you invest in yourself, nobody can take it away from you."

Of course, Buffett is famous for his diet of Coke and McDonald's, so he admitted people should do what he says, not what he does: "I'll get a certain criticism for not living it," he said.

Finally, Buffett's definition of "true success" doesn't have anything to do with money.

"Well, I've said many times that If you get to be 65 or 70 and later and the people that you want to have love you actually do love you, you're a success," Buffett told Serwer.

See also:

Billionaire 'Shark Tank' star Mark Cuban: This is how to know if a business will be successful

Google execs reveal secrets to success they got from Silicon Valley's 'trillion dollar' business coach

Amazon's Jeff Bezos: Why success depends on not being efficient sometimes

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  Monday, 22 Apr 2019 | 9:43 AM ET

CNBC'S LAUREN HIRSCH: KRAFT HEINZ CEO BERNARDO HEES TO STEP DOWN, WILL BE REPLACED BY AB INBEV'S MIGUEL PATRICIO

Kraft Heinz CEO Bernardo Hees to step down, will be replaced by AB InBev's Miguel Patricio

  • Kraft Heinz CEO Bernardo Hees is stepping down on June 30.
  • He will be replaced by Miguel Patricio, who worked as chief marketing officer at beer giant AB InBev.
  • Patricio says Kraft Heinz Chairman Alexandre Behring approached him about the new CEO role a few months ago.

Lauren Hirsch

Kraft Heinz CEO Bernardo Hees will step down on June 30, marking the embattled company's most significant executive shakeup since its formation four years ago.

Hees will be replaced by Miguel Patricio, who worked for two decades at beer giant Anheuser-Busch InBev, including as chief marketing officer from 2012 through last year.

Hees leaves at a critical time for Kraft Heinz, which is struggling to boost sales in the slow-growing food industry and facing questions from investors about the business model created by its second-largest shareholder, private equity firm 3G Capital.

Shares of Kraft Heinz, which are down roughly 20 percent this year, rose 2 percent on the news in premarket trading, giving it a market capitalization of $40 billion.

In February, Kraft Heinz delivered a trifecta of bad news: It reduced its dividend by 36 percent, wrote down its brands by $15 billion and disclosed an investigation by the Securities and Exchange Commission into its accounting and procurement practices.

That announcement sent Kraft Heinz's stock careening, wiping $16 billion off its market capitalization in one day. The company's share price is less than half what it was when it was created by 3G and Warren Buffett's Berkshire Hathaway in 2015 through the merger of H.J. Heinz and Kraft Foods.

"I bring very different profile [than Hees]" said Patricio. "My profile can help the future. It's not about liking what happened, it's about understanding the future. We need to lead, not follow."

Patricio told CNBC that Kraft Heinz Chairman Alexandre Behring approached him about becoming CEO a few months ago. He declined to say whether Behring approached him before or after Kraft Heinz's devastating earnings announcement.

Patricio said he met with all the members of the board, who voted for him unanimously. Kraft Heinz's board includes former Kraft Foods CEO John Cahill and Berkshire Hathaway board member Gregory Abel.

The incoming CEO said his focus will be on improving Kraft Heinz's speed, organic growth, brand building and making the company more consumer focused.

He would not comment on what mistakes he believes Kraft Heinz has made, and noted it was "very natural" for Hees to step down after six years on the job, two of which he spent leading Heinz.

Hees decided to move back to 3G Capital to focus on other projects after completing his six-year stint at Kraft Heinz, a spokesman for the company said.

3G partner no longer at the helm

With the departure of Hees, one of the companies most closely associated with investment firm 3G Capital will no longer be run by a 3G partner. 3G Capital, a private equity firm with Brazilian roots, made its name rolling up some of the most iconic American companies into consumer giants. Hees has been at the forefront of those efforts, sitting as chief executive of Burger King Worldwide, H.J. Heinz and later Kraft Heinz.

In those roles, Hees helped implement 3G's aggressive approach to cost-cutting and budgeting that served to carve out industry-leading margins and to fund its acquisitions. He oversaw Kraft Heinz as it extracted roughly $1.7 billion in savings from merging the two food companies. The company helped support those savings by slashing its research and development department, limiting trade spending and tightening marketing dollars, analysts say. It also laid off thousands of employees, including those with years of marketing experience in the consumer goods industry.

But as Kraft Heinz's sales have stalled, analysts have wondered whether 3G cut too deeply and quickly, starving brands of investment needed for growth. They have questioned whether that approach works without deal-making to give the company needed fat to cut. Kraft Heinz has not done a major acquisition since its 2015 merger.

Those questions have carried over to other companies affiliated with 3G Capital, like Patricio's former employer, AB InBev — the beer company was created by the founding principles of 3G Capital. While not a portfolio company of 3G Capital, it shares a 3G affinity for cost-controls and acquisitions.

After halving its dividend last year to pay down debt, AB InBev had its own executive shakeup. It announced in March it was bringing back two former AB InBev executives to join the board.

Patricio, a native of Portugal, said he has no affiliation to 3G, stressing he has new perspective to share in the CEO seat at Kraft Heinz.

"I bring a very different background with my experience in consumer food," he said.

During his run at AB InBev, Patricio oversaw brands including Corona, Budweiser and Stella Artois, accelerating their organic sales growth up to the high single digits, nearly a third of the company's organic growth in 2018. In his final year as chief marketing officer, AB InBev was the most awarded brand owner at the Cannes Lions awards for advertising and creative communications.

Patricio's prior roles at AB InBev include stints as president of Asia Pacific for four years and president of North America for two years. He also had positions at Philip Morris, Coca-Cola and Johnson & Johnson.

The food industry, though, is more fragmented and diverse than the beer sector, an attribute Patricio said does not worry him.

"Consumer goods are consumer goods," he said, adding, "Where there is transformation, there is opportunity."

Still, there is ample upheaval. Upstart food brands sprout up seemingly daily, catching consumers' attention and stealing market share from all legacy companies from General Mills to Kellogg. Retailers, under their own competitive pressure, are also squeezing Big Food's once prized profit margins and filling their shelves with their own products, undercutting legacy brands on price.

Kraft Heinz has iconic brands, like Philadelphia cream cheese and Heinz ketchup, that still have global appeal and dedicated spots in pantries and refrigerators. The Heinz brand has grown 26 percent over the past six years, according to Nielsen.

But it is also saddled with others, like Maxwell House coffee and Oscar Mayer meats, that have seemingly lost touch with consumers and struggled to compete against cheaper store-owned competitors.

Kraft Heinz under Hees said it was weighing divestitures of brands that gave it "no competitive edge" as it looks to bring its leverage down to three times earnings before interest tax depreciation and amortization, rather than the four times at which analysts say it is currently pegged. It has $3 billion of debt that will be due in 2020, which may have to be refinanced.

Maxwell House coffeeand Breakstone's cottage cheese and sour cream are among those Kraft Heinz is evaluating, CNBC has reported.

Patricio declined to comment on potential divestitures or acquisitions.

Regarding how he will define success at Kraft Heinz, he said he will look at both the top and bottom-line, without giving specific targets.

"It's like sports, either you win, or you do not."

For more information contact:

Erin Kitzie
CNBC
t: 201.735.4739
m: 201.753.8107
e: erin.kitzie@nbcuni.com

Marissa Tarabocchia
CNBC
t: 201.735.4722
m: 646.808.9302
e: marissa.tarabocchia@nbcuni.com

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  Monday, 22 Apr 2019 | 9:00 AM ET

Here's everything that has gone wrong for Kraft Heinz in the last year

Posted ByAmelia Lucas
Kraft and Heinz products
Scott Olson | Getty Images
Kraft and Heinz products

The departure of Kraft Heinz CEO Bernardo Hees follows a string of headaches for the consumer packaged foods company over the last year.

Shares of Kraft Heinz rose 1.3% in morning trading Monday following the announcement that former Anheuser-Busch InBev executive Miguel Patricio, 52 years old, will replace Hees as CEO.

The iconic food company's stock, which has a market value of about $40.2 billion, has fallen more than 43% in the last year as it struggles to keep up with changing consumer tastes and stiff competition from new brands. Sales have grown stagnant, and its cost-cutting has recently fallen short, especially as commodity costs increase.

In February, the company revealed that it had received a subpoena from the Securities and Exchange Commission four months earlier related to its accounting policies and internal controls. It further disappointed investors with the news that it slashed its dividend by 36% and took a $15.4 billion write-down on Kraft and Oscar Mayer, two of its biggest brands. It also announced revenue and earnings that fell well short of Wall Street's estimates.

Four days after the batch of bad news, Warren Buffett told CNBC that Berkshire Hathaway overpaid for Kraft. Back in 2015, the billionaire CEO teamed up with Brazilian private equity firm 3G Capital to finance the merger between Kraft and Heinz. Berkshire and 3G are two of the company's biggest shareholders.

Months earlier, in August, 3G trimmed its stake in the company by 7%, bringing its total ownership to about 22%. Jorge Lemann, 3G's founder, said at the time that the company's business model of buying up strong consumer brands was facing new difficulties from upstart brands.

As a result of its troubles, Kraft Heinz has been weighing a number of divestitures, including its Maxwell House coffee business and Breakstone's sour cream and cottage cheese brand. Last November, the Capri Sun owner sold its Canadian dairy business and Indian beverage business for $1.23 billion, with the proceeds going toward paying down its debt.

After signaling that another acquisition could be on its way in early 2018, the company passed on the opportunity to bid on Pinnacle Foods, which was instead snapped up by Conagra Brands. And amid speculation that Kraft Heinz could buy Campbell Soup, Hees told analysts that the company didn't want any long-term regrets when it comes to mergers and acquisitions.

»Read more

About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.