For decades, Brazilian billionaire Jorge Paulo Lemann was seen as a modern-day King Midas, who turned every company he bought into money-making machines. His portfolio includes some of the world’s most recognizable brands, such as Burger King and Budweiser. One in every five beers sold worldwide is produced by AB Inbev—a company of which Mr. Lemann holds a large stock and which is led by one of his protegés. In 2015, he piloted one of the world’s most impressive merger and acquisition deals—uniting Heinz and Kraft Foods under his command for USD 28 billion.

Some years later, however, the mogul had his business savvy questioned and his business model was deemed “outdated.” Even his friend Warren Buffett—one of the world’s most famous investors—threw him under the bus, saying he “was wrong in a couple of ways about Kraft Heinz.” To CNBC, Mr. Buffett admitted: “We overpaid for Kraft.”

Just before this year’s Carnival holiday, Kraft Heinz shares crashed 27 percent when the company reported a USD 15.4 billion impairment that caused a USD 12.6 billion loss, an investigation by the U.S. Securities and Exchange Commission into accounting practices slashed its dividends by 36 percent.

</span></p> <p><span style="font-weight: 400;">Both companies seem to share the same problems: a changing consumer mindset and a decreasingly effective management style.</span></p> <hr /> <p><img class="alignnone size-large wp-image-16038" src="https://brazilian.report/wp-content/uploads/2019/04/export-ciXps-1024x683.png" alt="ab inbev kraft heinz" width="1024" height="683" srcset="https://brazilian.report/wp-content/uploads/2019/04/export-ciXps-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/export-ciXps-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/export-ciXps-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/export-ciXps-610x407.png 610w, https://brazilian.report/wp-content/uploads/2019/04/export-ciXps.png 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <h2>A blueprint based on acquisitions</h2> <p><span style="font-weight: 400;">&#8220;Value-adding innovation is useful, but copying what is already working is usually more practical.&#8221; This quote, attributed to Mr. Lemann, seems to encapsulate his business recipe: investing in already-established consumer goods companies posting profits below their potential. Besides the Kraft deal, Mr. Lemann&#8217;s investment firm, 3G Capital, almost snatched Unilever for USD 143 billion. With USD 480 billion in acquisitions, the firm is the second-biggest buyer in history, behind only American fund Blackstone.</span></p> <p><span style="font-weight: 400;">For years, 3G Capital’s way of doing business, forged by Mr. Lemann and his partners Carlos Alberto Sicupira and Marcel Telles, was seen as a blueprint for success. Aggressive sales, though cost control and plenty of acquisitions, provided results for a long time. But it now seems to be causing more problems than it is solving.</span></p> <p><span style="font-weight: 400;">Kraft Heinz has seen its consumers preferring healthier and fresher foods; AB InBev merged with SABMiller and is the largest brewer in the world, but clients are opting for craft and premium beers.</span></p> <p><span style="font-weight: 400;">“The least concerning is the accounting issue. Most concerning is that companies like Kraft have, to use the word, blown up, over the last year. (&#8230;) I think that’s all due to the fact that consumers are not eating the same kind of food they used to. That’s where the root of their problems are,” said JPMorgan analyst Ken Goldman about Kraft Heinz in a CNBC interview.</span></p> <div id="attachment_16037" style="width: 780px" class="wp-caption alignnone"><img aria-describedby="caption-attachment-16037" class="size-full wp-image-16037" src="https://brazilian.report/wp-content/uploads/2019/04/lemann.jpeg" alt="jorge paulo lemann" width="770" height="400" srcset="https://brazilian.report/wp-content/uploads/2019/04/lemann.jpeg 770w, https://brazilian.report/wp-content/uploads/2019/04/lemann-300x156.jpeg 300w, https://brazilian.report/wp-content/uploads/2019/04/lemann-768x399.jpeg 768w, https://brazilian.report/wp-content/uploads/2019/04/lemann-610x317.jpeg 610w" sizes="(max-width: 770px) 100vw, 770px" /><p id="caption-attachment-16037" class="wp-caption-text">Jorge Paulo Lemann</p></div> <h2>A new era at Kraft Heinz?</h2> <p><span style="font-weight: 400;">3G Capital announced a major change at the helm of Kraft Heinz, replacing Brazilian Bernardo Hees with Portuguese executive Miguel Patricio as chief operating officer—a change that will become effective on July 1. Mr. Patricio was serving as AB Inbev&#8217;s chief marketing officer.</span></p> <p><span style="font-weight: 400;">The change is only one of many. The company&#8217;s board will no longer have Mr. Lemann—nor his partners. Warren Buffett is another exit. A 3G Capital partner told the press &#8220;there are many fresh faces in the companies and the families to take over.&#8221;</span></p> <p><span style="font-weight: 400;">As the new CEO, Mr. Patricio will face the task of investing in real innovation. His predecessor did come up with new product ideas, but nothing that would take the company into a new era. His &#8220;inventions&#8221; include </span><a href="https://www.thisisinsider.com/heinz-kranch-sauce-combines-ketchup-ranch-2019-4"><span style="font-weight: 400;">Mayochup</span></a><span style="font-weight: 400;"> (a mix of ketchup and mayonnaise) and Just Crack an Egg (a sort of breakfast bowl).</span></p> <p><span style="font-weight: 400;">After the botched Unilever deal, Kraft Heinz is unlikely to seek a new acquisition. The company has recognized it will need to invest some &#8220;USD 50, 100 million&#8221; if it is to become more up to date with new consumer habits. </span></p> <p><span style="font-weight: 400;">In a statement to investors, the outgoing CEO called Mr. Patricio a &#8220;brand creator.&#8221; At AB Inbev, he led the global expansion of beer labels Corona (Mexico), Budweiser (U.S.), and Stella Artois (Belgium)—and also helped the company enter the Chinese market.

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MoneyApr 22, 2019

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