When Berkshire Hathaway and 3G Capital joined forces to swing the merger of Kraft and Heinz, it seemed as though everyone was optimistic. If those investing powerhouses saw a winning strategy, what could go wrong? The answer, of course, was "lots." Turns out that if all of your key brands are midlevel and unexciting, you're vulnerable to cheaper private labels on the lower end and all the unusual, new, organic, insert-your-buzzword-here products at the top end. But even after a few years of malaise for Kraft Heinz (NASDAQ:KHC), Wall Street was not happy to hear that 3G Capital had recently sold 25 million shares of the food company.

In this segment from MarketFoolery, host Chris Hill and Motley Fool Asset Management's Bill Barker discuss the situation at Kraft Heinz, why the reasons behind the sale may have nothing to do with its competitive problems, how Warren Buffett may be feeling about his stake, and whether the stock is a good bargain.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Sept. 17, 2019.

Chris Hill: Shares of Kraft Heinz down 4% today. That's because 3G Capital disclosed it's sold 25 million shares of Kraft Heinz. I will add parenthetically, this is on top of the 20 million shares that 3G sold in August of 2018. In some ways, this seems like the opposite of WeWork, in the sense that WeWork gets ready to go public, and pretty much everyone who looks at it says, "Oh, God, I want no part of that company at a valuation of $47 billion, or, for that matter, $25 billion." You think back to 3G Capital getting together with Berkshire Hathaway on the Kraft Heinz deal, and at the time, was anyone negative on this deal? This deal that has just continued to go south quarter after quarter, year after year? At the time, it was like, "Oh, it's the brilliance of Buffett. 3G Capital has this reputation as great operators. They're going to make this work."

Bill Barker: Yeah, I don't recall anybody being skeptical about the long-term prospects here. But, times change. I think that 3G has brought the cost-cutting mentality, and has improved significantly operating margins at the entity. But, they have in part done that by cutting back on brand building and advertising, so the top line is not growing at all. Where they find themselves is in a world where Kraft and Heinz -- to shine a spotlight on the brands that you know through their name, and there are many other brands under the umbrella here, but Kraft cheese, Heinz ketchup. You've got two brands that are stuck in the middle, and this is where they are. They have brands, everybody knows the names. But, there's increased competition by private label, which can compete in terms of quality against them. And then, there's lots of other things coming into the market that are more organic, more healthy, certainly advertising themselves as more healthy than the highly packaged goods that we associate with these names, more expensive. So, if people are going to spend a little bit more than the private label, maybe they're going to spend a little bit more than that to get the organic stuff, the healthier stuff. And Kraft Heinz has the middle part of that market, which is not growing.

Hill: Let me move away from the business and talk for a moment about palace intrigue, for lack of a better phrase. Back in June, Warren Buffett was asked about tensions between Berkshire Hathaway and 3G Capital over this deal. Berkshire Hathaway has had to write down the Kraft Heinz acquisition. At the time, he was like, "No, no. Everything's great." How many more times can 3G Capital sell tens of millions of shares before Berkshire Hathaway starts to think, "You know, maybe we're going to dump some of this, too"?

Barker: Well, in part, it depends on how accurate the possibility is that a lot of what the sale was about was a capital raise. 3G has windows where it needs to return capital to shareholders who want some of their money back. This being one of their largest holdings, this is one of the places that they have to go to get that. There was a separate filing that the head of 3G, for himself, his personal holdings, increased by $100 million of Kraft Heinz. That's the narrative that Buffett presumably has to figure out. If the head is buying more, showing confidence in the company, at least at this price, and there's nothing that they can do about the money that they have to return to shareholders other than to liquidate things they otherwise wouldn't want to liquidate -- including but not limited to Kraft Heinz -- then maybe everything is good. If that turns out to be a story that he can't trust, for some reason, then things are not as good. The palace intrigue ends in murder, I suppose. Presumably death.

Hill: [laughs] Presumably. 3G sold 20 million shares last summer, summer of 2018, at around $60 a share. They just sold these -- right now, the stock's around $28. It's close to an all-time low. Does this look at all attractive to you on a valuation basis? Do you think there's any chance Buffett goes out and buys more of this? Or, do you think this is just one he lets sit there for a while because of the pain it has caused at this point?

Barker: I'm not sure if he has a philosophy on throwing good money after bad.

Hill: I'm pretty sure he's against that.

Barker: Yeah, I mean, when you phrase it that way. Or, averaging down, if you want to look at it a bit more positively. It's trading about 9X earnings, I think. There's certainly a place where you get interested in the valuation here. Presumably, it's been in that place for a while, actually. I think it is possible. But, he doesn't need to go further down this path.