From Mr Terry Smith.

Sir, Glen Arnold (Letters, February 21) states that he has yet to read a proper analysis of Warren Buffett’s thinking for the Heinz deal. He takes issue with the view expressed by, among others, Lex (“Attack of the killer tomatoes”, February 15) that Mr Buffett’s Berkshire Hathaway may have overpaid for its investment in Heinz. Prof Arnold bases his view on a comparison of the expected yield on Berkshire’s investment in Heinz with the yield on government securities. This may not qualify as “proper analysis” as the yields on government bonds have been set by the government purchasing those bonds in the form of quantitative easing.

A more valid comparison would be to gauge the Heinz transaction against the yield that would be required if government bonds were being issued to rational outside investors, as they will eventually have to be, in which case I would estimate that a yield of perhaps 1 per cent over the rate of expected inflation might be required, or about 4.5 in sterling currently. This makes the yield on Heinz look much less attractive.

A better comparison would be to compare the yield on the Heinz deal with the yield which could be obtained on similar companies. Then I think the Heinz transaction looks expensive.

T.C. Smith, Chief Executive, Tullett Prebon, Chief Executive, Fundsmith, London EC2, UK

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