Warren Buffett Disappointed Kraft Heinz Split: Berkshire Hathaway Stake, 5% Share Drop, Merger Reversed
Warren Buffett Disappointed Kraft Heinz Split: Berkshire Hathaway Stake, 5% Share Drop, Merger Reversed
Key Takeaways
- Warren Buffett openly criticized the Kraft Heinz split, calling it a disappointment and doubting it'll solve the company's core problems .
- Berkshire Hathaway took a $3.76 billion write-down on their Kraft Heinz investment, reflecting the merger's massive value destruction .
- The split reverses the 2015 $46 billion merger engineered by Buffett and 3G Capital, which never delivered its promised growth .
- Kraft Heinz stock fell 5% immediately after Buffett's comments, showing how his opinion still moves markets .
- The breakup seperates iconic brands into two companies, one for growth categories like sauces, another for slower-growth grocery staples .
Buffett's Disappointment and The Immediate Market Reaction
When Warren Buffett speaks, investors listen. And his reaction to the Kraft Heinz split was crystal clear: he's "disappointed" . In a classic Buffett understatement, he told CNBC that the merger he helped orchestrate back in 2015 "didn't turn out to be a brilliant idea," but he also doesn't believe pulling the company apart will fix its deep rooted problems . This isn't just casual criticism, it's a stark admission from someone who rarely acknowledges his mistakes publicly.
The market reaction was instant and brutal. Shares of Kraft Heinz fell more than 5% following Buffett's comments . This drop highlights the incredible influence Buffett still has on market sentiment, even when he's discussing a investment that's been struggling for years. It also shows how shareholders were hoping for his blessing on this strategic shift, and instead got a public vote of no confidence.
What many people might not realize is that Greg Abel, who's taking over as CEO of Berkshire Hathaway from Buffett at years end, also expressed disappointment to Kraft Heinz management according to Buffett . This isn't just about one investor's opinion, it's about Berkshire's entire leadership team being skeptical. Abel has been handling more of Berkshire's day-to-day operations recently, so his alignment with Buffett on this issue signals unified disapproval.
Buffett's relationship with Kraft Heinz has been complicated. He maintained Berkshire's 27.5% stake even as Brazilian private equity firm 3G Capital quietly exited their position in 2023 . That loyalty makes his public disappointment all the more significant. He's been their largest shareholder for a decade, watching the value of that investment decline steadily, and now he's seeing the company take a drastic measure he doesn't believe in.
The Failed 2015 Merger: What Went Wrong
The Kraft-Heinz merger back in 2015 was suppose to be a masterpiece of consolidation in the food industry. Buffett's Berkshire Hathaway teamed up with private equity firm 3G Capital to merge Kraft Foods with H.J. Heinz in a massive $46 billion deal . The vision was simple: combine two iconic American food companies, cut costs aggressively, and create a packaged goods giant that could dominate supermarket aisles.
The problem was that this vision never really materialized like they hoped. Instead of becoming a growth engine, the combined company saw it's U.S. sales start slipping just a few years after the merger . Health-conscious consumers were buying less packaged food and shopping more around the perimeter of the grocery store, the fresh sections, rather than the center aisles where most Kraft Heinz products live .
Some analysts also blamed the company's slump on those very cost-cutting measures that were suppose to make it successful . 3G Capital was famous for it's zero-based budgeting approach, making managers justify every expense from scratch each year, which worked well at Burger King and Anheuser-Busch . But at Kraft Heinz, this approach meant the company wasn't investing enough in brand innovation and marketing at a time when they desperately needed to adapt to changing consumer preferences .
The financial damage has been staggering. Since the deal closed in 2015, Kraft Heinz shares had tumbled nearly 70% as of just before the split announcement . The company's market value dropped to $33 billion from what was originally a $45 billion merger . That's billions in shareholder value evaporating over the course of a decade.
In a rare admission, Buffett told CNBC after a disastrous quarter in 2019 that Berkshire had "overpaid for Kraft" . That was the year Kraft Heinz took a $15.4 billion write-down on Kraft and Oscar Mayer brands, slashed it's dividend by 36%, and disclosed it had received an SEC subpoena related to its accounting policies . The dream had well and truly turned into a nightmare.
Strategic Missteps and Changing Consumer Habits
Kraft Heinz's struggles weren't just about bad timing, they made some fundamental strategic errors that left them playing catch-up in a rapidly changing food landscape. The company's leadership initially seemed to believe that cost-cutting alone could drive profitability, but this came at the expense of crucial investments in brand development and innovation .
While competitors were reformulating products to remove artificial ingredients and responding to health trends, Kraft Heinz was slow to adapt. They eventually started making changes, like cutting sugar in Capri Sun, removing artificial dyes from mac and cheese, and launching plant-based alternatives, but these efforts felt like they were playing catchup rather then leading . By the time they acted, many consumers had already switched to newer brands that better aligned with their values.
The rise of private label products hit Kraft Heinz particularly hard. As inflation squeezed household budgets, shoppers at Walmart, Costco, and other supermarkets increasingly chose store-brand packaged foods, even in categories where name brands had long enjoyed fierce loyalty . When you're struggling financially, paying less for similar quality becomes pretty compelling, and Kraft Heinz couldn't effectively differentiate their products enough to justify premium prices.
Table: Kraft Heinz's Strategic Challenges vs. Consumer Trends
The company's portfolio management also seemed confused at times. They sold off some businesses like Planters nuts and parts of their cheese division , while simultaneously trying to refresh legacy brands like Lunchables and Oscar Mayer . This created a sense of reactionary decision-making rather than a coherent longterm strategy.
What's really interesting, and something I've noticed watching this industry for years, is how the most successful food companies have balanced portfolio optimization with sustained innovation. They've made strategic acquisitions of emerging brands while also renovating their core products. Kraft Heinz seemed to be stuck in between strategies, never fully committing to either transformation or optimization until it was too late.
Greg Abel's Role and Berkshire's Future Position
With Warren Buffett stepping down as CEO of Berkshire Hathaway at the end of 2025, though staying on as chairman, all eyes are on Greg Abel and how he'll handle the Kraft Heinz situation . Abel has already expressed disappointment to Kraft Heinz management according to Buffett , signaling that Berkshire's new leadership isn't any more optimistic about the split than it's current leadership.
Abel's approach to the Kraft Heinz investment will be interesting to watch because his background is quite different from Buffett's. He made his name running Berkshire Hathaway Energy, where he demonstrated strong operational skills and strategic thinking in a regulated, infrastructure-heavy business . This is quite different from the brand-driven, consumer-facing nature of Kraft Heinz's business.
Some investors worry about whether Abel can replicate Buffett's capital allocation genius, but others point out that he's been gradually taking over those responsibilities for about a year already . The Kraft Heinz situation will be an early test of how he handles a problematic investment that Berkshire has held for years. Does he maintain the position, try to exit gradually, or use Berkshire's influence to shape the outcome of the split?
Buffett has said that regarding Berkshire's future as a Kraft Heinz investor, they'll "do whatever is in the best interest of the firm" . He also noted that if Berkshire is approached to sell it's shares, the firm won't accept a block bid unless other shareholders receive the same offer . This suggests they're being careful to avoid any appearance of favoritism or insider dealing during the transition.
The financial impact on Berkshire has already been significant. The conglomerate took a $3.76 billion write-down on their 27.4% stake in Kraft Heinz just last month . This承认 the massive destruction of value that's occurred since the merger. For context, Berkshire's overall cash position was $347.7 billion as of March 2025 , so while the write-down is substantial, it's not catastrophic for their overall financial health.
The Breakup Plan: Two Companies, Two Strategies
Kraft Heinz's split isn't just a simple division of assets, it's a strategic attempt to create two more focused companies that can hopefully grow faster than the combined entity could. The separation, which is expected to close in the second half of 2026, will create two distinct publicly traded companies.
The first company (currently called "Global Taste Elevation Co" in some reports) will focus on sauces, spreads, and shelf-stable meals . This business will include powerhouse brands like:
- Heinz ketchup and condiments
- Philadelphia cream cheese
- Kraft Mac & Cheese
This company would have had approximately $15.4 billion in 2024 net sales, with about 75% of those sales coming from sauces, spreads and seasonings . It's positioned as the growth company, operating in categories that have held up better against private label competition and changing consumer preferences.
The second company ("North American Grocery Co") will consist of processed foods and ready meal brands including :
- Oscar Mayer meats
- Kraft Singles processed cheese
- Lunchables boxed meals
- Maxwell House coffee
- Capri Sun drinks
This business would have had approximately $10.4 billion in 2024 net sales . It's focused more on North American staples, brands that are iconic but have faced more significant challenges from health trends and private label competition.
Current Kraft Heinz CEO Carlos Abrams-Rivera will stay with the grocery company, while the board has hired an executive search firm to find a CEO for the sauces and spreads company . This leadership split suggests they recognize the different skill sets required to lead these two distinct businesses.
The company expects the split to cost up to $300 million but anticipates reducing much of that expense quickly . They're framing this as a necessary step to reduce complexity, Miguel Patricio, executive chair of the Kraft Heinz board, said "the complexity of our current structure makes it challenging to allocate capital effectively, prioritize initiatives and drive scale in our most promising areas" .
Industry Context: The Great Food Unbundling
Kraft Heinz isn't operating in a vacuum with this split, they're part of a broader trend of major food companies unbundling their portfolios to create more focused businesses. This represents a significant shift from the "bigger is better" consolidation mindset that dominated the industry for decades, including when the Kraft-Heinz merger was conceived back in 2015.
Just last week, U.S. soft drinks giant Keurig Dr Pepper announced an $18 billion takeover of JDE Peet's that will result in a split of the merged entity's coffee operations and other beverage businesses into two separate publicly listed companies . This suggests that the focused portfolio approach is becoming favored across the food and beverage industry.
Back in 2023, Kellogg completed it's separation into two companies: Kellanova (focused on global snacking like Pringles and Cheez-It) and WK Kellogg Co (focused on North American cereal) . The success of this separation might have influenced Kraft Heinz's decision, especially since Ferrero recently bought WK Kellogg Co for $3.1 billion and Mars announced a nearly $30 billion deal for Kellanova . This shows that focused companies can become attractive acquisition targets.
The driving force behind these splits is the recognition that different product categories have different growth trajectories, competitive dynamics, and investment requirements. Trying to manage everything under one corporate roof can lead to suboptimal resource allocation and strategic focus. As one analyst noted, "unless both entities invest in innovation and defend against private-label encroachment, the breakup may not achieve more than a temporary financial lift" .
From my perspective having followed these trends, the companies that succeed after a split are those that don't just see it as financial engineering but actually create more entrepreneurial cultures focused on their specific categories. The risk is that you end up with two mediocre companies instead of one struggling giant, but the reward potential is significant if each can pursue strategies tailored to their specific market positions.
What This Means For Investors and The Market
For investors, the Kraft Heinz split presents both opportunities and risks. On the positive side, separating into two companies could potentially unlock value by allowing each business to be valued based on it's own growth profile and prospects rather than being dragged down by the weaker performing assets . This is the theory behind most corporate breakups.
However, as Buffett pointed out, simply splitting the company doesn't automatically fix it's fundamental problems . Both companies will still face significant challenges, the grocery business must deal with sluggish growth and intense competition from private label, while the sauces company, though in better categories, still needs to invest heavily in innovation and brand building to stay relevant.
The execution risks are substantial. The separation process itself will be complex and costly, up to $300 million according to company estimates . There's also the risk that neither company will achieve the scale needed to compete effectively in their respective categories, especially against giants like Nestlé, Unilever, and J.M. Smucker, not to mention the rising tide of smaller, nimbler brands.
For Berkshire Hathaway shareholders, the situation presents additional considerations. With Buffett transitioning to chairman and Abel taking over as CEO, how they handle this investment will be watched closely as an indicator of Berkshire's approach under new leadership . Will they maintain the position, reduce it, or try to influence the separation process?
Looking at the broader market implications, if the Kraft Heinz split proves successful, it could encourage other diversified food companies to consider similar moves. Companies like General Mills, Campbell Soup, and Conagra Brands might feel pressure from investors to explore separation options if Kraft Heinz's stock performance improves post-split.
But the real lesson here might be about the limits of financial engineering in the food industry. The original Kraft-Heinz merger was largely financially motivated, cost cutting and consolidation, without enough attention to changing consumer preferences and the need for continuous innovation. No corporate structure can fix that fundamental issue, only good strategy and execution can.
Frequently Asked Questions
Why is Warren Buffett disappointed about the Kraft Heinz split?
Buffett's disappointed because he doesn't believe splitting the company will adress the fundamental problems that have plagued it since the 2015 merger. He's acknowledged that the original merger "wasn't a brilliant idea" but thinks unraveling it now isn't the solution .
How much has Berkshire Hathaway lost on their Kraft Heinz investment?
Berkshire took a $3.76 billion write-down on their 27.4% stake in Kraft Heinz just last month . Since the 2015 merger, Kraft Heinz shares had fallen nearly 70% as of Friday before the announcement .
What are the two new companies being formed?
One company will focus on sauces, spreads and shelf-stable meals (brands like Heinz, Philadelphia, and Kraft Mac & Cheese). The other will focus on North American grocery staples (brands like Oscar Mayer, Kraft Singles, and Lunchables) .
How will the split affect Kraft Heinz shareholders?
Existing shareholders will end up owning shares in both of the new companies once the separation is complete. The transaction is structured as a tax-free spinoff expected to complete in the second half of 2026 .
Is this part of a larger trend in the food industry?
Yes, other major food companies have recently pursued similar breakups. Kellogg split into Kellanova and WK Kellogg Co in 2023, and Keurig Dr Pepper recently announced plans to split after acquiring JDE Peet's .