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Buffett Says Berkshire Hathaway 'Overpaid' For Kraft

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Billionaire Warren Buffett said Monday that his company Berkshire Hathaway Inc. (BRK-B,BRK-A, BRKa) paid too much for its investment in food giant Kraft (KHC).

In an interview on CNBC's Squawk Box, Buffett said, "I was wrong in a couple of ways about Kraft Heinz. We overpaid for Kraft."

However, Buffett added that Kraft was still a wonderful business in that it uses about $7 billion of tangible assets and earns $6 billion pre-tax on that.

"But we, and certain predecessors, paid $100 billion in tangible assets. So for us, it has to earn $107 billion, not just the $7 billion that the business employs," Buffett noted.

However, the Oracle of Omaha added that he did not intend to sell his stake in Kraft and it would be difficult to do so as Berkshire's position in the stock is big.

Berkshire acquired HJ Heinz in 2013 jointly with Brazilian private-equity company 3G Capital and merged it with Kraft Foods Group two years later.

Last Thursday, Kraft Heinz said it wrote down the value of some of its biggest brands, including the Oscar Meyer and Kraft brands, by $15.4 billion.

On Saturday, Berkshire reported fourth-quarter net loss attributable to shareholders of $25.39 billion, compared to net income of $32.55 billion reported last year. The quarter's results included impairment of intangible assets of $3.02 billion, attributable primarily to Berkshire's equity interest in Kraft Heinz.

In his annual letter to Berkshire shareholders, Buffett said that wide swings in Berkshire's quarterly GAAP earnings will inevitably continue as the company's huge equity portfolio, valued at nearly $173 billion at the end of 2018, will often experience one-day price fluctuations of $2 billion or more.

He advised the company's shareholders to focus on operating earnings and to pay little attention to gains or losses of any variety.

Buffett also said he and Berkshire's Vice Chairman Charlie Munger continue to hope for an "elephant-sized acquisition."

"In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects," Buffett said in the letter.

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