Monthly Archives: January 2015

Soros Follows Buffett’s Lead in Acquiring Auto Dealerships

(BRK.A), (BRK.B)

Automotive News is reporting that investor George Soros is following Warren Buffett’s lead in acquiring multiple auto dealership groups.

Soros Fund Management is reportedly ready to invest up to $1 billion to get into the slowly consolidating retail auto sales business.

The news of Soros’s interest in acquiring auto dealerships broke at the NADA’s 98th annual convention in San Francisco, which was held January 23-26, 2015.

In October 2014, Berkshire Hathaway announced the purchase of the Van Tuyl Group, a family-owned dealership network which has 78 stores throughout the Sunbelt states. The auto group will be rebranded as Berkshire Hathaway Automotive. The sale was for $4.1 billion, wh0ch is roughly 4 times annual sales.

Auto sales continue to heat up as middle and lower income consumers rebound from the recession. The combination of lower gas prices and pent-up consumer demand are predicted to push new car and light truck sales to roughly 16.94 million for 2015.

Ripe for Consolidation

Like the grocery retailing sector, auto retailing is a slim-profit business, with an average profit margin of 2.2 percent. The slim profit margin makes consolidation attractive for economies of scale. Counterbalancing the tight profit margins are the exclusive territory that dealers gain to represent automotive brands.

There is still plenty of room for consolidation in the retail auto sales sector, which has 17,665 auto dealerships in the U.S., according to NADA. The largest dealership group is currently AutoNation, which has 228 outlets. Recently, AutoNation has been actively buying back its own stock, which is a further indicator that this sector is undervalued.

Penske Automotive Group, which is second in size behind AutoNation, has also been expanding with a doubling of its North American commercial truck dealerships among its top priorities.

(Portions of this article have been updated with new information.)

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

2014 Berkshire Hathaway Acquisitions You Didn’t Hear About

(BRK.A), (BRK.B)

2014 was a busy year for Berkshire Hathaway, with over $5 billion in acquisitions both directly by Berkshire Hathaway and through its companies. I’m sure you heard about the purchase of Procter & Gamble’s Duracell battery division, but did you know that other acquisitions made Berkshire the leader in beverage dispensing, and got Berkshire into automobile retailing for the first time? Here is a list of some of the other lesser-known acquisitions. Did you miss any of them?

Marmon Retail & End User Technologies Acquires Cornelius, Inc.
Date: January 2014
What it is: Cornelius, Inc. is the world’s leading supplier of beverage dispensing and cooling equipment. They manufacture and market a broad line of beverage dispense solutions for soft drink, beer, ice, juice, tea, and frozen as well as a complete line of accessories.

Berkshire Hathaway Specialty Insurance Acquires MyAssist, Inc. from Noel Group
Date: January 2014
What it is: MyAssist is a technology-driven, cloud-based personal assistance solution that leverages advanced technologies to give customers a customized, personal experience. MyAssist provides Mercedes-Benz and Ford with live-agent personal-assistance and telematics service using “location-aware technology” from Verizon Communications Inc.

MiTek Acquires Ellis & Watts Global Industries
Date: April 2014
What it is: Ellis & Watts is the recognized leader in the engineering, design, and fabrication of highly customized HVAC and other products sold into the nuclear, military, and other industrial end markets.

EXSIF Worldwide, Inc. Buy’s OCS
Date: April 2014
What it is: OCS Limited is a tank rental and chemical supply company based in Aberdeen, United Kingdom. OCS operates in the offshore oil and gas sector, serving clients in the North Sea.

Berkshire Hathaway Acquires Van Tuyl Group
Date: April 2014
What it is: Van Tuyl Group is the nation’s largest privately-owned auto dealership group, which ranks fifth among all U.S. auto dealership groups.

Berkshire Hathaway Energy Acquires AltaLink
Date: May 2014
What it is: AltaLink owns 12,000 kilometers of transmission lines and 280 substations that bring electricity to 3 million customers in Alberta, Canada.

Berkadia Acquires Keystone Commercial Capital
Date: May 2014
What it is: Keystone Capital is a full-service commercial mortgage banking company headquartered in Phoenix that services more than $2 billion in commercial real estate loans.

BH Media Acquires Catamaran Group
Date: September 2014
What it is: Catamaran Group publishes 12 weekly papers, with circulations ranging from 7,000 up to 15,000, serving the southern New Jersey shore area. While the individual circulations are small, the combined circulations exceed 111,000.

Lubrizol Acquires Warwick Chemicals
Date: November 2014
What it is: Warwick Chemicals is a leading global developer, producer and supplier of stain removal technology with hygiene benefits. Headquartered in Mostyn, North Wales, Warwick Chemicals has strong positions with global and regional detergent producers. Their products are an essential element in laundry detergent powders and automatic dishwashing products used across five continents and in more than 50 countries.

Lubrizol Acquires Engineered Chemistry and Integrity Industries
Date: December 2014
What it is: Engineered Chemistry supplies additives and fluids for a range of oilfield activities, including cementing, drilling, flow assurance and fracturing. It offers chemistry expertise to solve problems throughout the oil and gas drilling process. The business consists of a core manufacturing and research organization which supports a global field distribution network. Engineered Chemistry was built through a series of acquisitions over the past 12 years and is headquartered in Houston, TX. It operates 10 sites located predominantly in North America. Integrity Industries manufactures drilling fluid systems, including diesel, mineral oil and synthetic oil based fluids. The company supplies these drilling fluid systems to retail drilling fluid companies along with technical support.

Berkshire Hathaway Acquires Charter Brokerage
Date: December 2014
What it is: Charter Brokerage is a leading global trade services company providing complete customs, import, export, drawback and related services.

There you have it!

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF Ups Capital Investment for 2015

(BRK.A), (BRK.B)

In 2014, BNSF Railway made a record $5 billion in capital expenditures, coupled with another $500 million in other network expansion initiatives. The massive $5.5 billion in spending was part of an effort to keep up with record demand coming from all sectors, including from oil producers in the Bakken formation, utilities demanding coal deliveries, grain producers, and a wide-range of intermodal shippers.

The record shipping demand generated a tsunami of complaints about delays, and left BNSF facing questions from both government regulators and customers. In March of 2014 the backlog for grain shipments alone hit 8,000 cars, before being trimmed to 1,000 cars by October.

Among the regulators concerned with the impact of delays, the U.S. Surface Transportation Board (STB) instructed BNSF to provide a detailed description of its contingency plans to prevent potential coal shortages for electric utility shippers.

The $5 billion in single-year capital expenditures represented record spending not only for BNSF, but according to the company, for any railroad ever. And, in order to continue to tackle its demand issues and delay backlogs, BNSF will again set a record in 2015 with an announced capital plan that totals $6 billion of investment in everything from rails, ties and ballast, to a slew of new locomotives.

Roughly $500 million of the record capital expenditure will be spent in the North Dakota region, with 55 miles of new double track running between Minot, North Dakota, and Glasgow, Montana, to be a top priority.

2014 Progress

In a letter to customers, BNSF’s Group Vice President, Consumer Products, Katie Farmer, laid out the impact of some of the 2014 expenditures.

“Projects in 2014 which positively impacted service while providing additional capacity for our intermodal network include: completion of the Tower 55 project. Located near downtown Fort Worth, Texas, Tower 55 is one of the busiest and most congested railroad intersections in the U.S. As many as 100 freight and passenger trains move through the area every day. With the completion of this project, network fluidity has benefitted traffic moving through this key area.

We have kicked off double track, line-capacity expansion projects to address the remaining Transcon bottlenecks. In all, we have invested more than 3 billion dollars over the last 10 years double tracking nearly all of this route and making this the fastest intermodal route connecting Southern California to the Midwest. When complete in 2015, nearly all of the Transcon will be double tracked and even triple tracked in some areas. In addition, we have completed several terminal expansions in the Chicago area and added 800 new container and trailer parking spots at three Chicago hub facilities. We also expanded our Houston Intermodal Hub facility in Pearland, TX to allow us to handle growing business in and out of this market.

In our Auto network, we moved into our new Big Lift automotive facility, serving Denver and the state of Colorado. This 57-acre facility has more than three times the acreage of our previous facility and offers more capacity and greater highway access. We also increased track capacity for loading operations at our San Diego, Albuquerque and Pearland Hubs and we increased automotive parking capacity at our Portland, Logistics Park Chicago (LPC) and Albuquerque facilities.

We were able to double our auto facility capacity in Kansas City, as a result of transition of all intermodal business to Logistics Park Kansas (LPKC), which opened in late 2013. LPKC is another example of our growth initiatives with current capacity of 550,000 annual lifts and future growth capacity that can scale to 1.5 million lifts. The more than 440 acres of developable property at LPKC offers opportunities for current and future customers to grow.

BNSF Railway, in joint service with Ferromex (FXE), initiated a new 6th morning intermodal service between Chicago, Illinois and Silao, Guanajuato, Mexico. The new service offering is the first and only direct Intermodal service to connect the Midwest to the Heart of the Bajio Region.”

2015 Capital Expenditure Plans

In a separate release on November 20, 2014, BNSF detailed its priorities for 2015:

“The largest component of the 2015 capital plan will be for the renewal of assets and maintenance, which is expected to cost $2.9 billion. These projects will go toward replacing and upgrading rails, ties and ballast that are due for updating. Track replacement projects typically make up the largest percentage of BNSF’s annual capital projects and are important for ensuring BNSF can optimize its rail network for ideal speeds for trains that carry a wide range of commodities.

BNSF also plans to spend almost $1.5 billion on expansion projects. Nearly $500 million of that expansion work will occur in the Northern Region, which is where BNSF is experiencing the fastest growth. That region primarily serves agriculture, coal, crude oil and materials related crude oil exploration and production.

BNSF will also increase the size of its locomotive fleet through the addition of new, energy and fuel efficient locomotives. BNSF will acquire 330 new locomotives to add to its fleet of 7,500 and replace others that will soon reach the end of their useful life.”

Carl Ice, BNSF’s president and chief executive officer, framed the capital expenditures as a vote for the continued strong growth of the U.S. economy.

“BNSF’s capital investment program since the beginning of 2013 through the end of 2015 is unprecedented and is clear evidence of our confidence in a growing economy and our intention to meet the demand for service that comes from all our customers,” Ice said.

Upping the Ante

In 2009, Warren Buffett described the acquisition of BNSF as “an all-in wager on the economic future of the United States.” Clearly, Berkshire Hathaway and BNSF continue to make that wager year after year.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.