Warren Buffett just bid to take Heinz (HNZ) private for $72.50 per share. Heinz’ shares jumped from $60 to $72.50.
Buffett is an acolyte of Benjamin Graham. Graham set out seven criteria for how to value a stock based upon price, earnings, book value, current ratio, and growth. His criteria are in the second column of this table.
|Earnings||10 years +||Yes||OK|
|Dividend||20 years +||Yes||OK|
So how does Heinz measure up? Heinz’ measures are in the third column of the table, and Heinz falls short on three of Graham’s seven criteria: current ratio; P/E ratio; and P/B ratio.
The lesson must be that even Graham’s criteria are only broad guidelines for acquisition (or Buffett has made an error).