(FROM THE WALL STREET JOURNAL 5/4/15)
By Anupreeta Das
Warren Buffett has frequently touted Berkshire Hathaway Inc.'s
partnership with private-equity firm 3G Capital. At Berkshire's
annual meeting Saturday, he was forced to defend it.
Many Berkshire shareholders wanted to know if their company's
business principles were compatible with 3G, which has made its
name as an aggressive cost-cutter that appoints its own executives
and eliminates thousands of jobs at the companies it acquires. One
called 3G's cost-cutting moves "brutal" and asked whether Mr.
Buffett no longer "aspired to balance capitalism and
compassion."
Berkshire CEO Mr. Buffett supported 3G's efforts to trim fat and
said that 3G had bought some companies staffed with "considerably
more people in the job than needed." Layoffs, he said, spurred
those same companies to perform "exceedingly well."
The burgeoning relationship between Berkshire and 3G is creating
some new headaches for Mr. Buffett, who has long been seen as a
benevolent owner of businesses,rarely interfering with managers or
pursuing big layoffs.
Their different styles have raised eyebrows from the start.Mr.
Buffett has criticized the private-equity business model, which led
many to wonder if the investor was going back on his words when he
teamed up with 3G.
Mr. Buffett doesn't consider 3G private equity because it
prefers long-term ownership of companies instead of buying and
selling them within a few years. 3G also differs from traditional
private-equity firms in that it doesn't raise funds from large
institutional investors seeking a return. Rather, the firm invests
its founders' money and funds from a small network of high-profile,
wealthy families.
Questions about the partnership could become more common as
Berkshire and 3G seek to enhance their ties. Mr. Buffett has said
he would like to do morefriendly deals with 3G. Since 2013, the two
firms have partnered on three deals, including a plan revealed in
March to buy Kraft Foods Group Inc. These deals have provided 3G,
an ambitious firm with roots in Brazil, with a source of ready
funds for deals while giving Mr. Buffett another way to add
earnings power to Berkshire.
The way Mr. Buffett handled questions about 3G on Saturday
revealed an aspect of the folksy Omaha, Neb.-based billionaire that
many people overlook: He supports job cuts when they are necessary
to improve performance.
Mr.Buffett and his business partner Charlie Munger have alluded
to this attitude in Berkshire's owner's manual, where they write
that their reluctance to sell businesses they own, including
laggards,"hurts our financial performance."
For decades Mr. Buffett has focused on buying businesses that
were already well run and had managers who would continue running
them efficiently with little interference. That gave Berkshire
areputation as a company where jobs are largely preserved,
including senior positions.
However, Berkshire's gigantic size limits its opportunities for
additional big deals that fit Mr. Buffett's criteria and can
meaningfully affect earnings.
Finding a partner like 3G, which manages the operations of their
joint acquisitions, has solved that problem by expanding the field
of potential targets that Berkshire might not have bought on its
own because of the turnaround work needed. Mr. Buffett also is
friends with Jorge Paulo Lemann, a media-shy billionaire who
co-founded 3G and attended Berkshire's annual meeting Saturday.
A 3G spokesman declined to comment.
Mr. Buffett said 3G's strategy has worked at Tim Hortons, the
Canadian coffee-and-doughnut chain that reported improved results
recently. Tim Hortons was purchased last year for $11 billion by
3G-backed Burger King with financial help from Berkshire and merged
into a new company called Restaurant Brands International Inc.
Berkshire has also benefited from improved results at H.J. Heinz
Co., which it, along with 3G, bought for $23 billion in 2013. The
ketchup maker cut 4% of its global workforce under 3G.
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