A line from the song Old Nashville Cowboys by Hank Williams, Jr., is anyone listening or is everyone blind, comes to mind when we take a closer look at the Buffett offer for Heinz.
I have written repeated articles for seekingalpha.com [see here, here and here] demonstrating that the value of HNZ is much higher than the current offer price, and so far no one has disagreed with me.
The crux of my argument has been the comparable valuation for Hershey (NYSE:HSY). If we use trailing twelve months EV/EBITDA, HSY trades at 29 times trailing twelve months EV/EBITDA, and HNZ, including the deal premium, trades at only 13.5 times trailing twelve months EV/EBITDA.
If we use 29 times trailing twelve months EV/EBITDA for HNZ, we get a sales price for HNZ of $167, a staggering 130% higher than the current Buffett offer.
If you are a substantial fund manager or a broker to a substantial fund manager, take a look at the arbitrage opportunity represented by this deal.
A fund manger who is inclined to reject Mr. Buffett's ridiculously low offer, can step in here and drive up the price to a fair valuation. The fund manager can use options to hedge the position in the event that the deal falls apart, which I submit would ultimately be in the long-term best interest of shareholders.
The trade represents an exceptional opportunity for near term risk-adjusted returns.
I recognize that the deal will not be valued on trailing twelve months EV/EBITDA, but if you look at the Hershey valuation, you can use a variety of metrics and all of them lead to a significantly higher sales price for HNZ.
There is no reason to my mind that HNZ and HSY are not comparable investments.
Let's get a healthy debate started and more importantly, if we are going to be forced to sell our HNZ stake, let's get a fair price for it.
I will vote no to the sale and it appears that a majority of the individual shareholders are also inclined to vote no. Are any institutions listening?