What Did Warren Buffett Want to Buy?

And now for some pure speculation…

This morning on CNBC, Warren Buffett said that he almost bought two different companies for $20B this year and may be looking at a 3rd company that could be purchased for $6B.  Below are some possible names that he might have been alluding to based on a few Buffett-based assumptions 1) He wouldn’t pay more than a 30% premium to current price (Burlington Northern and Lubrizol were each purchased at ~30% premiums) 2) He likes companies with long operating histories and better operating metrics than peers 3) That are in industries that he understands well (close to companies that he already owns).

Possible $20B Acquisition Targets

Archer Daniels Midland (ADM: ~$18B):  In my mind this is the most likely candidate for a Buffett acquisition of this size.  He’s actually said in the past that ADM is the type of company that he likes to invest in.  It’s a Midwest company and Buffett knows agriculture well.  He frequently talks about owning farmland and in fact does own a farm that his son Howard runs.  Howard Buffett also happens to have been on ADM’s board from 1992-1995.  Buffett is the ultimate collector and ADM is possibly a trophy that he has long coveted.

Kellogg (K: ~$18.5B), Heinz (HNZ: ~$18B), or Hershey (HSY: ~$16B): I lump these three together because all are in relatively similar businesses with similar price tags.  Buffett knows packaged consumer goods businesses well as already owns/has owned P&G, Kraft, Coca-Cola, See’s.  All three possible targets have good timeless brands and we know he has a sweet tooth.

Sherwin-Williams (SHW: $15B):  Buffett knows the housing and chemicals spaces.  He owns a lot of housing and construction related businesses already, so SHW would fit into the portfolio.  It has had a huge run recently, but a Buffett bid whisper might actually help to explain that.  He had been silently buying IBM for months before anyone knew.

McGraw Hill (MHP: $15B):  This might be more of a long shot because he already does have a large stake in Moody’s, but McGraw Hill is a crossroads of a two types of businesses that he likes: financial services and publishing.

Possible $6B Acquisition Targets

H&R Block (HRB: $4.7B):  Could it be?  Buffett has owned the company in the past but liquidated his stake in 2007.  Buffett did say that he already knew the company in question, but he knows most companies at this point.  The problem is that HRB has turned into a dysfunctional company with a messy legacy sub prime exposure and is getting beaten badly by INTU.  My guess is that if this is the company he was referencing, he’ll realize he doesn’t want to take on the risk once he looks at the financials.

Gannett (GCI: $4B): He has always loved publishing and media businesses even if they are somewhat old world.  Arguably, USA today is one of four national newspaper brands besides the New York Times, the Wall Street Journal and the Washington Post (which he of course owns already).  There are also about 100 local newspapers owned by Gannett which is a business that Buffett also feels is more protected from new media.

International Flavors and Fragrances (IFF: $5B):  A bit of a dark horse perhaps, but it has been in business in since 1833–a specialty chemicals company in an oligopolistic market that creates and licenses scents and flavors for consumer products.  A really nice niche business that might be buy-able for $6B.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.