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Warren Buffett spurns big banks in Heinz merger

By
Josh Kosman and
Kevin Dugan
Published March 25, 2015, 10:50 p.m. ET

Warren Buffett has made a mint off Lloyd Blankfein — but don’t expect him to return the favor.

The folksy billionaire — who once had nothing but praise for the Goldman Sachs boss — shut the Wall Street powerhouse and other big banks out of his latest blockbuster deal.

Kraft Foods and H.J. Heinz said Wednesday they are merging to create the fifth-largest food company, in a $36 billion deal backed by Buffett and Brazilian investment firm 3G Capital.

Lazard advised Heinz, owned by Buffett and 3G, while Centerview Partners advised publicly traded Kraft.

The banks raked in around $100 million in M&A fees, sources said.

Meanwhile, Goldman and fellow “bulge bracket” bank JPMorgan were left out despite having done recent work for both companies.

JPMorgan helped advise Buffett and 3G in 2013, when they paid $29 billion for Heinz, while Goldman did the same for Kraft in 2012, when the company split itself into two separate companies.

Blankfein and JPMorgan chieftain Jamie Dimon were likely looking for who was to blame for missing out on the biggest deal of the year, said a rival banker.

“The fear of the miss is a great component of their culture,” the banker added.

Commemorative ketchup bottles with portraits of Warren Buffett at the exhibition of Berkshire Hathaway companies last year. Kraft Foods Group Inc., the maker of Velveeta cheese, will merge with ketchup maker H.J. Heinz Co.Reuters

By snubbing the big banks, Buffett added injury to insult. In his annual letter to Berkshire Hathaway investors this month, he derided investment bankers as “money-shufflers” who “don’t come cheap.”

In response, Blankfein said that while Buffett doesn’t think he needs banks, he isn’t above investing in them, including Goldman, when it suits him.

“Warren’s comments about bankers must be based on conjecture or hearsay,” Blankfein told the New York Times’ Andrew Ross Sorkin in an interview. “As far as I know, he doesn’t take advice from bankers or pay them.”

Buffett’s Omaha-based Berkshire invested $5 billion in Goldman in 2008, when the embattled bank was looking to restore investors’ faith during the depths of the financial crisis. Berkshire has made billions from the lucrative deal and still owns a 3 percent stake.

At the time, Buffett showered Blankfein with compliments and declared his “love” for the bank.

What’s different? Unlike when Buffett and 3G bought Heinz, they are not borrowing money to finance this deal, so they have less need for a mainstream bank.

There was also fear that too many bankers on the deal would lead to leaks, driving up the deal price.

“They wanted to keep it tight,” said one source.