Warren Buffett and Berkshire Hathaway have more than $55 billion in cash on hand, and in his latest for Forbes.com Validea CEO John Reese looks at some companies that might be of interest to Berkshire.
Already having a major stake in the transportation industry with Burlington Northern Santa Fe, Warren Buffett’s firm is now making a move into another type of transportation investment.
Berkshire Hathaway is acquiring Phillips Specialty Products Inc., the flow improver business of Phillips 66, in exchange for Phillips stock Berkshire already owns, MarketWatch reports. Phillips Specialty Products makes polymers designed to reduce drag and increase flow potential in pipelines, MarketWatch said. The deal is expected to close sometime in the first half of 2014.
The move is a logical step for Berkshire, says MarketWatch’s Jim Jelter. Burlington Northern transports oil via rail from the blossoming Bakken oil field in North Dakota, where the use of fracking is growing. “Because it’s new, there are few pipelines serving the region, which means about 90% of the state’s crude is being sent to refiners by rail,” Jelter says. But, he adds, pipelines are much safer and more efficient when it comes to transporting oil and gas.
“At the same time, Berkshire’s PSPI acquisition neatly fits Buffett’s move into a broad spectrum of energy companies over the past few years, including the 27-million-share stake he took in Phillips 66 earlier this year,” Jelter says. “The next logical step for Buffett’s empire building in the energy sector would appear to be investing in pipelines and, at the other end, the refineries that stand to benefit most from them.”
Berkshire Hathaway’s second-quarter trades are out, and Warren Buffett’s firm has been making some interesting moves.
Berkshire cut back sharply on two major food-related holdings, slashing its stake in Kraft Foods by 88% and its stake in Mondelez by 92%, CNBC’s Alex Crippen reports on Warren Buffett Watch. Berkshire did add heavily to some of its financial stocks, upping its stake in U.S. Bancorp by 27% to nearly $3 billion and its stake in Bank of New York Mellon by more than 30% to about $750 million. And it increased its holdings in General Motors by 60%, a stake now worth $1.4 billion.
As for new stakes, Berkshire added $586 million in shares of Canadian energy firm Suncor Energy to its portfolio, and a $24 million stake in Dish Network. “The smaller the size of the position, the more likely it’s the work of one of Berkshire’s portfolio managers, not Buffett himself,” Crippen notes. “For Suncor, however, it’s worth noting that in 2008 he and Bill Gates made a ‘quiet’ visit to the area.”
Overall, Berkshire’s stock portfolio was worth $89.0 billion at the end of the quarter, according to an SEC filing, up from $85.0 billion at the end of the first quarter.
Warren Buffett’s Berkshire Hathaway has made a couple moves this week, acquiring a large power company and a small daily newspaper.
Berkshire subsidiary MidAmerican Energy is buying the power company, NV Energy, which is Nevada’s largest electric utility, The New York Times reports. The move — the largest in MidAmerican’s history — appeared to be in part a play on Nevada’s economy recovering after being hit hard by the housing bubble bursting, the Times reported. “This is a great fit for Berkshire Hathaway, and we are pleased to make a long-term investment in Nevada’s economy,” Buffett said. “Through MidAmerican, we have found in NV Energy a great company with similar values, outstanding assets, and a superb management team.” MidAmerican is paying $5.6 billion, a 23% premium to NV’s shares, the Times said.
Berkshire’s BH Media Group, meanwhile, will be purchasing Virginia’s Roanoke Times, the paper reported. The price was undisclosed. This marks the 29th paper that Berkshire has purchased.
In his 2012 letter to Berkshire Hathaway shareholders, Warren Buffett says it was a subpar year for his firm, but that hasn’t dampened his optimism on the future of both Berkshire and the United States.
Buffett says that while many CEOs have been holding off on capital investment because of “uncertainty”, Berkshire has not, spending a record $9.8 billion on plant and equipment in 2012. “A thought for my fellow CEOs: Of course, the immediate future is uncertain; America has faced the unknown since 1776,” Buffett writes. “It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful). American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor.”
The link between business performance and stock performance over the long haul are, as always, a topic Buffett speaks about at length. Last year was just the ninth in 48 years of his firm’s existence that Berkshire’s per-share book value — a measure of success he prefers over stock price gains — lagged the S&P 500’s gain. “Whatever Berkshire’s results, my partner Charlie Munger … and I will not change yardsticks,” Buffett said. “It’s our job to increase intrinsic business value — for which we use book value as a significantly understated proxy — at a faster rate than the market gains of the S&P. If we do so, Berkshire’s share price, though unpredictable from year to year, will itself outpace the S&P over time. If we fail, however, our management will bring no value to our investors, who themselves can earn S&P returns by buying a low-cost index fund.”
Buffett also addresses the issue of why Berkshire doesn’t pay a dividend. He says the firm’s “first priority with available funds will always be to examine whether they can be intelligently deployed in our various businesses.” The next option he looks at is increasing shareholder value through acquisitions. Buffett says that, while he’s made mistakes in terms of acquisitions, his overall track record indicates that “our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends.” Buffet also lays out a scenario showing how investors who want income would actually be better off not receiving dividends, and instead selling off a portion of their shares each year.
Other topics Buffett covers in the letter include his reasoning behind buying up a bunch of newspapers over the past year, the difference between intrinsic value and book value, and a re-examination of Berkshire’s owner-related business principles. To download a copy of the full letter and annual report, click here.
Warren Buffett’s Berkshire Hathaway has struck what is being called the biggest deal in food industry history, a $28 billion acquisition of ketchup giant H.J. Heinz. But don’t think that means Buffett is done buying.
“I’m ready for another elephant,” Buffett told CNBC. He said that Berkshire had about $47 billion in cash on hand at the end of 2012. It’s putting $12 billion to $13 billion toward the Heinz deal, which also involves private equity firm 3G Capital Management. Given that his firm wants to keep about $20 billion of cash on hand, that leaves another $15 billion to spend if Buffett can find the right opportunity.
3G will be primarily responsible for running Heinz, which will remain a private company, Buffett said. The deal was struck at a price that’s about 20% above Heinz’s all-time high, but Buffett said it’s worth it. “It’s our kind of company,” he said. In a press release, he added, “Heinz has strong, sustainable growth potential based on high quality standards, continuous innovation, excellent management and great tasting products. Their global success is a testament to the power of investing behind strong brand equities and the strength of their management team and processes. We are very pleased to be a part of this partnership.”
Value investor Mohnish Pabrai has gotten the chance to do what few other investors have: Eat lunch with investing legends Warren Buffett and Charlie Munger. What did he learn from those lunches? Pabrai says Munger told him that an investor could produce vastly better results than most others by doing three things. “One is carefully look at what the other great investors have done,” he tells The Motley Fool’s Morgan Housel. “And the second thing he said is, look at the cannibals. And what he meant by ‘look at the cannibals’ is, look carefully at the businesses that are buying back huge amounts of their stock. … And the third is, he said, carefully study spinoffs.” Buffett, meanwhile, told Pabrai about Rick Guerin, who was Buffett and Munger’s partner in the early days of Berkshire Hathaway. Guerin was overlevered when the 1973-74 bear market hit, and was forced to sell his Berkshire stake to Buffett. “[Buffett] said that if you’re even a slightly above-average investor who spends less than they earn, over a lifetime you cannot help but get rich if you are patient. And so the lesson … was, don’t use leverage. … And be patient.”
Warren Buffett’s firm sold almost all of its shares of Johnson & Johnson and General Electric in the third quarter, while adding a few smaller new positions.
Berkshire Hathaway decreased its stake in Johnson & Johnson by 95% during the quarter, and lowered its stake in GE by 88%, Alex Crippen of CNBC’s Warren Buffett Watch reports. Berkshire has had positions in both JNJ and GE since 2006, according to regulatory filings.
Berkshire also elimated small stakes in Ingersoll-Rand, Dollar General, and CVS Caremark during the third quarter, while taking new positions in Deere & Co., Precision Castparts, and Wabco Holdings. Based on their small size, the new additions were likely made by Berkshire managers Ted Weschler and Todd Combs, not Buffett, Crippen says.
Berkshire also upped existing stakes in several stocks, including General Motors, and decreased existing stakes in several others, including UPS. Click here for the full regulatory filing with all of Berkshire’s positions.
While it wasn’t the big acquisition he recently said he’s been “salivating” for, Warren Buffett and Berkshire Hathaway did recently make an addition to its business portfolio. Late last week, the firm announced it will acquire Omaha-based Oriental Trading Company, the nation’s largest direct retailer of value-priced party supplies, arts and crafts, school supplies, toys and novelties.
“Oriental Trading is a leader in its industry, has a strong management team and delivers exceptional customer value and service,” Buffett said in a press release. “By increasing revenue, profits and the customer base over the last few years, Sam Taylor and the entire Oriental Trading team have successfully improved the business and positioned it for long-term growth. We are delighted to have them join the Berkshire Hathaway family and continue their quest to make the world more fun. They have had several changes to ownership in the past, but OTC has a permanent home with Berkshire Hathaway. “
The deal is expected to close by the end of November, and will cost Berkshire about $500 million, Bloomberg News reported. That leaves plenty of cash left over for Buffett to pursue bigger deals — in a recent regulatory filing, Berkshire stated that its cash level rose 17% in the third quarter to almost $48 billion, just short of the firm’s record high, according to Bloomberg.
Warren Buffett’s firm is continuing to bet on a recovery in the U.S. housing market, with one of its subsidiaries taking the lead in managing a new residential real estate affiliate network.
HomeServices of America Inc., a subsidiary of Berkshire’s MidAmerican Energy Holdings Company, will be the majority owner of the affiliate network, teaming with Brookfield Asset Management to offer a new franchise brand, Berkshire Hathaway Home Services, Bloomberg News reports. The move is the latest in a series of housing-related moves Berkshire has made, according to Bloomberg, which notes that Buffett’s firm has bought a brickmaker, won the loan portfolio of bankrupt mortgage lender Residential Capital at auction, and built up its HomeServices unit by making deals to acquire other brokerages.
“Berkshire Hathaway HomeServices is a new franchise brand built upon the financial strength and leadership of Brookfield and HomeServices,” Buffett, who this summer said the housing market was beginning to recover, said in a press release on HomeServices’ web site. “I am confident that these partners will deliver value to the residential real estate industry, and I am pleased to have Berkshire Hathaway be a part of the new brand.”