One of Warren Buffett’s famous pieces of advice is to always keep cash handy. Ideally, this keeps him always ready to make a deal, no need for scraping together capital or figuring out what to sell in order to have the money on hand. It helps his conglomerate, Berkshire Hathaway, ultimately be more secure.
Even with Berkshire typically keeping around $20 billion on hand, sometimes for larger deals, Berkshire teams up with other companies. In these instances, Berkshire’s partner of choice is 3G Capital, a Brazilian investment firm that has been around just over a decade. The biggest deals made with Berkshire and 3G include purchasing Heinz for $23 billion, and then merging Kraft and Heinz.
It seems that 3G Capital has gotten the reputation to be somewhat ruthless with their cost cutting efforts, a claim that the Oracle of Omaha himself would not stand to listen to. In fact, he thinks Berkshire and 3G, ultimately, are not that different.
“Their method… is to buy companies that offer an opportunity for eliminating many unnecessary costs and then— very promptly— to make the moves that will get the job done. Their actions significantly boost productivity… At Berkshire, we, too, crave efficiency… To achieve our goals, however, we follow an approach emphasizing avoidance of bloat, buying businesses… that have long been run by cost-conscious and efficient managers,” Buffett writes in his 2015 shareholder letter.
Buffett has been questioned a lot about his partnering with 3G Capital, a company whose beliefs seemingly contrast those of Berkshire’s, and even after speaking out on the subject on multiple occasions it seems that Buffett still wanted to defend his partner company of choice. If you’re familiar with Buffett’s investing approach, you know that he prefers to invest in companies that do not really need much help.
In an interview with CNBC, Buffett explained that some companies that are extremely profitable will tolerate branches or plants that are losing money— 3G Capital is not one of those companies. “They believe in taking action,” Buffett says, but goes on to assure that the company does so sensibly and humanely. It does not look like the wise octagenarian has any interest in cutting ties with 3G, nor does he see any reason to it.
“We did not buy in to Heinz to sell Heinz, we bought into Heinz to grow Heinz— as did they… They are builders for efficiency as well as builders of product.”