Monthly Archives: February 2015

MiTek Industries Acquires M&M Manufacturing

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Berkshire Hathaway’s wholly owned MiTek Industries has acquired M&M Manufacturing, which is based in Fort Worth, Texas.

According to a MiTek press release, M&M Manufacturing is one of the country’s largest producers of sheet metal products, primarily servicing the air distribution and ventilation market. M&M provides a comprehensive range of round, rectangular, oval and spiral ductwork, fittings and accessories for residential and commercial construction.

M&M Manufacturing was founded by the Stepp family in Fort Worth, Texas in 1958, as a small sheet metal shop. The is now one of the largest HVAC ductwork and product manufacturers in the United States, with 6 manufacturing facilities producing more than 9,000 different products and employing nearly 800 team members.

M&M’s own extensive growth over the past decade included acquiring the Wilkins Corporation of Little Rock, Arkansas, in 2010. Wilkins manufactures steel duct pipe and fittings for the HVAC industry. M&M also opened a new a manufacturing plant in Austin, Texas, in 2014.

MiTek Industries is a “diversified, global business supplying a wide range of engineered products, proprietary design software, and automated equipment sold into the broad construction and industrial end markets.”

MiTek has been aggressive in its acquisitions, and in 2013 and 2014 acquired Benson Industries, Kova Solutions, Cubic Designs, and Ellis & Watts Global Industries.

© 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.

Berkshire Opens Door to Europe with Acquisition of Devlet Louis Motorradvertriebs

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“Capital travels,” notes Warren Buffet, and Buffett’s recent comments that he was looking towards Europe for acquisitions has turned into reality with the purchase of Devlet Louis Motorradvertriebs, a mail-order and retail chain selling motorbike clothing, helmets, leisurewear, add-on parts, and spare parts.

The acquisition price was just over 400 million euros, according to the Financial Times.

The Hamburg, German-based retailer has 1,600 staff in their Europe-wide mail order business and at 70 retail stores in Germany and Austria. Its online business reaches 25 countries.

Annual revenues are 270 million euros ($308 million).

The deal was done directly with Ute Louis, the widow of company founder Detlev Louis, who sold all her shares to Berkshire.

Like many of Berkshire’s acquisitions, such as carbide metalworking tool manufacturer ISCAR, Berkshire was approached directly by Detlev Louis Motorradvertriebs with the acquisition proposal. Berkshire is an attractive option for owners to cash out without their companies being sold off piecemeal.

High Customer Satisfaction

Devlet Louis Motorradvertriebs has drawn praise for its high customer satisfaction. The readers of Europe’s biggest motorbike magazine, Motorrad, have voted them “Best Brand” in the retail chain category for nine straight years.

Room for Growth

Motorcycles are a very popular form of transportation throughout Europe with 33 million PTWs (Powered Two Wheelers) registered in the 27 EU member states, according to the U.S. Department of Commerce. They project that the number of two-wheeled vehicles will increase to 37 million by 2020.

“Germany is a terrific market, lots of people, lots of buying power, productive, it’s got a legal system we feel very good with, it’s got a regulatory system we feel very good with, it’s got people we feel very good with—and customers,” Warren Buffett explained in an interview in German newspaper Handelsblatt.

Buffett characterized the acquisition as a “door-opener,” and noted that while the 400 million euros size of the acquisition was smaller than Berkshire usually looks for (except for bolt-on acquisitions), this certainly serves notice on European companies that Berkshire has its eye on Europe as it hunts for ways to invest its over $30 billion in cash.

(This article has been updated from when it was first published.)

© 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.

Berkshire Hathaway Saves Billions With Capital Gains Tax Strategy

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Investing in Berkshire Hathaway is often compared to investing in a mutual fund. Yes, Berkshire’s ownership of GEICO, BNSF, McLane, Lubrizol, Berkshire Hathaway Energy, Dairy Queen, Fruit of the Loom, and a host of other companies certainly give it a lot of diversification. Its ownership of the Marmon Group, which alone encompasses 160 separate companies, means that people almost on a daily basis come in contact with Berkshire’s products, often without knowing it.

However, there is an interesting difference between Berkshire Hathaway and a mutual fund, which directly impacts its shareholders. The difference is Berkshire’s ability to avoid capital gains taxes through asset acquisitions.

Berkshire Hathaway, unlike a mutual fund, is all about the buying and owning of whole companies. And while a mutual fund can own a portion of a company, its later sale of appreciated shares in that company generates a capital gain that is passed through to the mutual fund’s shareholders.

It is in this area that Berkshire has demonstrated a key advantage. In 2014 alone, Berkshire avoided capital gain taxes on $2.357 billion of appreciated stock by swapping its shares of appreciated stock for business units to add to its conglomerate.

Berkshire’s acquisition of Graham Holding’s WPLG-TV, Phillips 66’s pipeline-services business, and Procter & Gamble’s Duracell battery unit all enabled it to cash in billions of dollars of appreciated stock without capital gains taxes.

There’s More to the Story

While these acquisitions added new units to Berkshire’s portfolio, they also served as a conduit for bringing in cash tax free, because the companies that were acquired had sizable cash positions on their books.

In the case of Duracell, Berkshire’s $4.7 billion stake in Procter & Gamble came from an original investment in Gillette of only $600 million. In cashing out its position, Berkshire not only gets control of Duracell, but Duracell has been recapitalized by P&G with $1.7 billion in cash. This equivalent of leaving a very large bag of cash in the desk drawer in Duracell’s president’s office, allows Berkshire a transfer of cash that is three times its original investment in Gillette, and the entire $4.7 billion transaction incurs no capital gains taxes.

Similarly, the acquisition of Phillips Specialty Products Inc. from Phillips 66 included approximately $450 million in cash. Berkshire’s acquisition of WPLG-TV, which was part of the unwinding of Berkshire’s position as a shareholder in the Washington Post, also brought to the company roughly $328 million in cash and $444 million Berkshire shares that had been owned by Graham Holdings. In this case, Berkshire avoided substantial capital gains that would have been owed on its original $11 million investment in the Washington Post.

Over the years, Warren Buffett has been shrewd in getting into stock positions that have generated amazing appreciation. Berkshire’s $16 billion stake in Coca Cola, on a cost basis of only $1.29 billion, is just one example. And it should be recognized that his ability to liquidate positions without capital gains consequences has been equally shrewd.

So, the next time you are looking at your end-of-year mutual fund statement and wondering why you have to pay capital gains, even though you didn’t redeem any shares, just think of the tax free acquisitions that have saved Berkshire’s shareholders billions.

© 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.

Berkshire’s NV Energy Doubles its Renewable Energy RFP

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NV Energy, a unit of Berkshire Hathaway Energy, has issued a new RFP (Request for Proposals) seeking an additional 100 megawatts of renewable energy resources for its Southern Nevada customers.

NV Energy’s 2014 renewable energy RFP called for adding 100 megawatts of renewable energy, The new RFP combines the 2014 RFP with a new 2015 RFP to bring the total requested renewable energy to 200 megawatts.

The move comes after the Public Utilities Commission of Nevada pushed NV Energy to develop additional renewable energy resources before the expiration of federal energy tax credits and other public-interest benefits.

Fear of Tax Credit Reduction Accelerates Solar Plans

The current solar Investment Tax Credit will plunge from 30% to only 10% for utility-scale solar projects in 2017 unless Congress steps in.

Large scale solar projects have gone mainstream in recent years due in part to favorable tax credits, and Berkshire Hathaway has been a major player.

Among its acquisitions, MidAmerican Energy Holdings Company purchased two large-scale solar photovoltaic power plants from SunPower in 2013.

According to the company, bidders responding to the original 2014 RFP will be provided an opportunity to refresh their original proposals.

NV Energy, Inc., brings energy services to 1.3 million Nevada customers, and its renewable energy sources include 20 geothermal energy plants, nine solar energy projects, six hydro facilities, a large windfarm and a variety of biomass, methane and waste-heat recovery projects.

© 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.

Will Berkshire Bid on Oncor?

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Will Berkshire Hathaway Energy enter the bidding for Energy Future Holdings’ electricity transmission business, Oncor?

Oncor is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The sixth largest in the U.S., the company is the largest distribution and transmission system in Texas, with approximately 119,000 miles of lines and more than 3 million meters across the state.

Oncor is currently owned by a limited number of investors, including majority owner, Energy Future Holdings Corp., which landed in bankruptcy after amassing $40 billion in debt from a leveraged buy-out engineered by private equity firms KKR & Co. and TPG.

Oncor was originally scheduled to be auctioned in November 2014, but Judge Christopher Sontchi halted the process in order to give creditors more time to negotiate. Judge Sontchi recently okayed the restart of the bidding process, which is now on track for March 2015.

A strong fit for Berkshire?

Berkshire’s interest is no secret. In September 2014, Berkshire Hathaway Energy and several other energy companies, including NextEra Energy, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor.

The acquisition of transmission lines have been high on Berkshire Hathaway Energy’s list of late. In April 2014, the company made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc.

Oncor’s price will be substantially larger than AltaLink, with an estimated value in the range of $17.5 billion. This puts it in line with Warren Buffett’s goals to acquire more “elephants” in the $20 billion range.

In June 2014, Buffett noted that Berkshire had already poured $15 billion into acquiring energy companies and he declared “There’s another $15 billion ready to go, as far as I’m concerned.”

Could Oncor fit that bill?

© 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.