Monthly Archives: August 2015

Berkshire’s 13F Filing Hints at Surprise in the Wings

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Berkshire Hathaway’s Form 13F filing, which is required to be filed quarterly with the Securities and Exchange Commission, always give plenty to chew on for Berkshire watchers.

On the surface it has been a relatively quiet 2nd quarter 2015 for much of its minority-share stock holdings, with its purchase of a large number of shares in Charter Communications one of the few major increases.

Steady as She Goes

Berkshire’s four biggest holdings all remained unchanged, with Wells Fargo making up 24.68% of the total portfolio, Coca-Cola 14.64%, IBM 12.07%, and American Express 10.99%.

In the case of Coca-Cola, the $518 million in dividends it received in 2014, on a very low cost basis, meant an effective yield of 40%, so no wonder Warren Buffett calls Coca-Cola one of his “forever stocks.” You would drink five Cokes a day too if it got you a 40% return.

A Surprise Coming Soon?

The company did note that “confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission,” which likely implies that the company is amassing shares in a company, and in such a case it is not required to reveal the company publicly. Berkshire used the same strategy when it took a position in IBM that made it the company’s largest minority-owner with just over 8% of the company. We will have to wait and see if there is another surprise minority-ownership company bombshell, however we do know that the purchase was in the $3 billion range.

Stocks on the Increase

Berkshire bought 2,535,542 shares of the cable TV operator Charter Communications, increasing its position by 42% to 8,514,678 shares. The position is 7.6009% of Berkshire’s total portfolio.

Berkshire first took a position in Charter Communications during the 2nd quarter of 2014. The company has been on the rise since emerging from bankruptcy in 2009, and is in the process of merging with Time Warner Cable Inc. and acquiring Bright House Networks, a video service provider and cable internet provider. The merger is the work of Chairman John Malone whose Liberty Broadband is the largest Charter Communications shareholder. Berkshire has long been a buyer of shares in Malone’s companies, although in 2014 it sold its entire stake in premium cable channel Starz.

A Stock That’s Paying Dividends

Berkshire also increased its position in U.S. Bancorp by 1,289,777 shares, an increase of 1%, bringing its total to 85,063,167 shares. The position is 4.7538% of Berkshire’s total portfolio.

While Berkshire is famous for being the stock that doesn’t pay a dividend, it certainly loves to receive them, and U.S. Bancorp has been one of the stronger stocks in the banking sector for dividends. The company announced a 4.1% dividend increase in June, the 5th consecutive dividend increase since 2011.

A Potential Lubrizol Acquisition?

Also reported were the 20,000,000 shares of Axalta Coating Systems that it bought from the Carlyle Group for $28 per share. Berkshire first announced plans for the purchase in April, and the big question is whether the former DuPont unit is an acquisition target for Berkshire Hathaway’s Lubrizol Corporation. The $28 price was below the $31.30 share price that Axalta was trading at after the announcement. It now sits at $30.38 as of Friday’s closing bell.

Another Potential Takeover Candidate

DaVita Healthcare Partners, which also looks like a good fit with Berkshire, considering that an aging population and increased health care coverage under the Affordable Care Act benefits its kidney dialysis business, was unchanged at 38,565,570 shares.

Berkshire entered into a standstill agreement with Davita in May 2014, pledging not purchase more than 25% of the company. Its ownership stake currently sits at just under 17.95%.

And One That’s Not So Likely, Yet

The 13F filing does not yet reflect Berkshire’s 26% ownership of Kraft Heinz, which closed after the quarter ended. The filing does show that Berkshire owned 578,000 shares in snack maker Mondelēz International, Inc., which has recently been rumored as a possible merger candidate with Kraft Heinz. Warren Buffett just last week downplayed the possibility, noting that there was still much worked to be done in integrating Kraft and Heinz.

Stocks on the Decrease

Major decreases in holdings, included bailing on energy sector stocks Phillips 66 and National Oilwell Varco. Berkshire sold its entire 7,499,450 position in Phillips 66, and its entire 1,978,895 position in National Oilwell Varco. Both have been hit hard by low oil prices.

Berkshire had already liquidated most its Phillips 66 position in 2014 when it swapped it for ownership of Phillips Specialty Products Inc. and approximately $450 million in cash. The move brought tax saving to Berkshire and a new unit to Lubrizol.

Whither Viacom

Also going down were Berkshire’s shares in Viacom, Chicago Bridge & Iron Company, and WABCO Holdings Inc.

Its Viacom position decreased a whopping 31% as Berkshire sold 2,618,358 shares. Berkshire looks to be wise to get out of Viacom as fast as it can. The mass media company has seen its stock value plummet 42% year to date, as it struggles to hold on to viewers and carriers of its channels. Among its troubles, Viacom is in a battle with satellite TV provider Dish TV, which has dropped the company’s channels from its service.

Berkshire’s holdings in Chicago Bridge & Iron Company decreased 12% as it sold 1,374,189 shares. Berkshire first took a position in the engineering, procurement and construction company during the 1st quarter of 2013 only to watch the share price peak at $86.50 in April 2014 before crashing all the way down to $34.51 a year later. Year to date the stock has risen $23.25% but it appears that Berkshire has now cooled on it as an investment.

Buffett, Combs or Weschler

Berkshire does not normally announce which transactions are the work of Warren Buffett, and which transactions are the work of his two portfolio managers Todd Combs and Ted Weschler. However, Buffett recently revealed that Berkshire’s 2.9% position in aerospace manufacturer Precision Castparts was originally purchased by Todd Combs. It was Buffett that decided to make the bid to purchase the entire company for $37 billion.

While Warren Buffett has acquired most of Berkshire’s portfolio, Todd Combs and Ted Weschler each manage a portfolio that is roughly $9 billion in assets. The two investment managers are widely assumed to be the future managers of the entire portfolio.

The total portfolio slipped to a market value of $107.182 Billion from $110.776 billion at the end of the 1st quarter 2015.

© 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.

Could Kraft Heinz Be Ready To Gobble Up Mondelēz?

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When activist investor Bill Ackman took a $5.5 billion stake in Mondelēz International, Inc., everyone started looking at Kraft Heinz as a potential buyer for the snack food company. After all, Berkshire and 3G Capital have been busy wringing cost savings out of the newly united food giant, and it could make sense to add Mondelēz, which split off from Kraft in October of 2012. Mondelēz was supposed to be the more exciting part of the split, but its performance since then has been lackluster.

So, is Warren Buffett interested? Not in the short term, according to his comments Monday during an appearance on CNBC.

“Well, I will listen to anything my friends at 3G want to do, but with Kraft Heinz we have our work cut out for us for a couple of years,” Buffett said “I think it is quite unlikely, you never want to say anything is impossible, but I think it is quite unlikely that Kraft Heinz would be doing a big acquisition in the next couple of years. Somewhere down the road I wouldn’t be surprised. But, it also would have to make sense financially, and frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all of the work needed at Kraft Heinz. A lot of the companies are selling at prices that sort of reflect improvements in them that people sort of what has been happening at Kraft Heinz, and believe me this is not easy.”

Placing the Cart Before the Horse

According to Buffett, now that 3G proved it could wring savings out of Heinz, the other big food manufacturers became priced such that the savings is already factored into their share price.

“Well, it would be hard for us to make a deal that makes sense, yeah. But who knows what happens down the line, but if you look at Kellogg or Campbell’s Soup or Mondelēz, they’re prices to some extent the market has put into those companies prices that reflect an expectation Kraft Heinz type margins are possible, and that may be the case, but I have not seen it elsewhere.”

So, while the door’s open a crack, Buffett’s in no rush to go through 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.

Berkshire Gains Big from Life Insurance Merger

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In a consolidation in the insurance industry, Berkshire Hathaway’s minority position in Symetra Financial Corporation will be bought out as the insurance company merges with Sumitomo Life Insurance Company.

A Big Win for Berkshire

The merger will give Berkshire a 32% boost on its Symetra stake, as it receives an all cash offer for its shares. The tender offer will give Berkshire a windfall worth $144 million.

Berkshire and other Symetra shareholders will receive $32.00 per share in cash at closing, plus a previously announced special dividend of $0.50 per share in cash, which is payable on August 28, 2015 to Symetra shareholders of record as of August 10, 2015.

The total combined transaction consideration of $32.50 per share is approximately $3.8 billion in aggregate and represents a 32% premium over Symetra’s average stock price of $24.64 for the 30 days ending August 5, 2015.

Berkshire Hathaway currently owns 17% of Symetra and has agreed to vote in favor of the transaction.

White Mountains Insurance Group, Ltd., which owns 18% of Symetra, has also granted its approval for the merger.

Best Wishes, Warren

Warren Buffett in a statement said, “Tom and his management team have done a good job running the company and have executed a great deal for shareholders. I wish them the best for future success under their new owners.”

Founded in 1907, Sumitomo Life provides traditional mortality life insurance, nursing care, medical care and retirement plans through sales representatives, insurance outlets, the Internet and bancassurance. As of March 31, 2015, Sumitomo Life had $229 billion in assets, approximately 6.8 million customers and 42,000 employees.

Symetra was founded in 1957 and is based in Bellevue, Washington. The company provides employee benefits, annuities and life insurance through a national network of benefits consultants, financial institutions and independent agents and advisors. As of June 30, 2015, Symetra had $34 billion in assets, approximately 1.7 million customers, and 1,400 employees nationwide.

Symetra will become Sumitomo Life’s platform in the U.S., where Sumitomo Life does not currently have a material operational presence. Symetra’s President and Chief Executive Officer, Thomas M. Marra, and the current management team will continue to lead the business from Symetra’s headquarters in Bellevue. Symetra will maintain its current brand, employees, distribution channels and product mix.

© 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.

A Big Win for Todd Combs

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While Warren Buffett gets all the attention for pulling the trigger on Berkshire Hathaway’s biggest deal to date, the $37 billion acquisition of Precision Castparts Corp. It was Todd Combs that first brought the company to Buffett’s attention. Combs took his first position in Precision Castparts three years ago, and at the time of the announcement of Berkshire’s takeover, the stake had grown to 3% of the company.

That the biggest acquisition in Berkshire’s history comes because one of his portfolio managers clearly pleases Buffett. “You have to give Todd Combs credit for the deal,” Buffett said on Monday, noting that he had never heard of the company before Combs brought it to his attention. ”Todd told me a lot about it, and over the last few years I have become familiar with it,” he added.

It wasn’t until Precision Castparts’ CEO and Chairman Mark Donegan visited Berkshire, when he was making the rounds visiting some of the large shareholders, that Buffett got interested in making a bid for the leading aerospace manufacturer.

The Dynamic Duo

Five years ago, Buffett hired stock-pickers Todd Combs and Ted Weschler, entrusting each one with a billion dollar portfolio. He placed no restrictions on what they could buy, and he has purposely stayed away from back seat driving. As Buffett’s confidence has grown in the two portfolio managers, he has increased the size of each of their portfolios, which now sit at around $9 billion.

Todd Combs, a Columbia Business School graduate and the former head of the hedge-fund Castle Point Capital, was hired by Buffett in October of 2010. He made a name for himself when Castle Point had an annual return of 34%.

Ted Weschler, who came on board at Berkshire in September of 2011, is a graduate of the Wharton School, and was a partner in Peninsula Capital Advisors, LLC.

A Path Forward for Berkshire

Clearly, whoever assumes the reins at Berkshire post-Buffett now has excellent managers to handle its $100 billion-plus stock portfolio, which includes such blue chip stocks as Coca-Cola, America Express, and Wells Fargo. And, since the biggest job that Berkshire’s CEO has on his plate is capital allocation, both Combs and Weschler also offer another way for the next CEO to identify worthy companies to add to the conglomerate.

The latest one, Precision Castparts, is a big win for Todd Combs, and a big win for Berkshire.

© 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.

Kuwait the 27th country outside the U.S. & Canada for Dairy Queen

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With temperatures recently reaching 122 degrees Fahrenheit in Salmiya, Kuwait, could there be a better time to open a Dairy Queen?

Berkshire Hathaway’s wholly-owned Dairy Queen® system has opened its first DQ Grill & Chill® restaurant in Kuwait in the Marina Mall in Salmiya.

Kuwait is the 27th country outside the U.S. and Canada with a DQ® presence.

Middle East expansion has been at the top of Dairy Queen’s list over the last couple of years. Its list of countries already includes locations in Bahrain, Brunei, Egypt, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, with Jordan in the works.

A Focus on Emerging Markets

“Our strategy is to open franchises in emerging markets,” Dairy Queen’s President and CEO John Gainor said.

In April, Dairy Queen signed an agreement with SKM Franchise Co. LTD to open a minimum of 10 DQ locations in Jordan within five years.

“We believe there is an incredible growth opportunity in this region,” said Gainor. “The partnership with Durra Khaled for Foodstuffs Co. has allowed us to successfully re-launch our brand in Kuwait. Their wealth of business experience and diverse portfolio across the Middle East is a huge asset to the Dairy Queen system as we continue to invest and build on our global brand equity.”

Durra Khaled for Foodstuffs Co., a subsidiary of KMGC, has signed a long-term franchise agreement with the Dairy Queen system and plans to develop more than 20 DQ Grill & Chill restaurants and DQ Treat stores throughout Kuwait over the next five years.

The new restaurant features the full DQ Grill & Chill menu including the fan favorite, FlameThrower® GrillBurger™, chicken strip baskets, sandwiches and salads. The menu will also include the world famous DQ signature treats and beverages, such as the iconic Blizzard® Treat, soft-serve cones with the curl on top, sundaes and DQ Cakes.

The opening of the DQ Grill & Chill restaurant in Kuwait comes on the heels of the DQ brand’s recent store opening in the United Arab Emirates earlier this summer.

The DQ system has more than 6,500 locations, 1,457 of which are outside the U.S. and Canada.

For more information, read a Mazor’sEdge special report on Dairy Queen.

© 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.

Why Precision Castparts is a Great Fit for Berkshire

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Fresh off his purchase of Kraft in conjunction with 3 G Capital, Warren Buffett looks to have an even bigger target in the sight of his famed “elephant gun.”

News that Berkshire Hathaway is acquiring aerospace manufacturer Precision Castparts Corp. (PCP) for roughly $37 billion highlight’s Berkshire’s continued pursuit of companies with durable advantages that create a wide moat. While manufacturing for aerospace doesn’t have the same moat as a regulated utility or a railroad, it still has a huge barriers to entry due to the high cost of manufacturing specialized parts, and the unlikelihood that a customer will switch suppliers once a plane begins its production run. In short, it’s just the sort of company Warren Buffett loves.

What Buffett also must love just as much is Precision Castparts’ annual growth rate of 23% over the past ten years.

The deal will be Berkshire’s biggest ever, topping its $26 billion purchase of BNSF Railway in 2009.

Berkshire already owns 3% of the Portland, Oregon-based company.

About the Company

Precision Castparts manufactures structural investment castings, forged components, and airfoil castings for aircraft engines and industrial gas turbines. It is a world-leading producer of complex forgings and high-performance alloys for aerospace, power generation, and general industrial applications, and its customers include Airbus, Boeing, GE, and Rolls-Royce, among others.

With annual revenues of approximately $10 billion, the company reported $2.412 billion of revenue in the second quarter of 2015. Of that revenue, 72% came from aerospace, 15 % came from power, and 13% came from general industrial and other sales. Operating margins in the last quarter were a healthy 25.7%. The company has a 15% return-on-equity.

The company has 29,350 employees at 157 manufacturing plants.

Management in Place

Unlike both Heinz and Kraft, where 3G Capital took on the duties of replacing senior management, Berkshire is likely to leave Precision Castparts’ management in place. After all, traditionally that has been one of Berkshire’s acquisition criteria, stating “Management in place (we can’t supply it).”

In the case Precision Castparts, the company has a strong leader in CEO Mark Donegan, who during his thirteen years at the helm has led the company to an 11-fold return. Among his strengths, Donegan has a keen eye for the type of “bolt-on” acquisitions that Buffett likes.

Why It’s a Great Buy for Berkshire

With the Great Recession now in the rear view mirror, airlines are placing large orders to replace aging fleets. Those orders, which are primarily to Airbus and Boeing, benefit Precision Castparts, as it supplies key components to both the A320neo and 737 MAX.

Doubling the Market

While Precision Castparts manufactures everything high-pressure blades for power generators to medical prosthetics, it is complex metal components for the aerospace industry that not only brings in the majority of its revenues, but also offers solid opportunities for growth.

As large as the commercial market for jets already is, it is expected to double by 2030 due to strong demand from India and China. By 2030, the Asia-Pacific market is expected to grow to 30% of all world-wide passenger mileage.

Boeing predicts that 38,050 new aircraft with a total value of $5.6 trillion will be needed in the next two decades. Roughly 10,500 commercial jets are needed just to replace fleets of old, fuel-guzzling aircraft that are aging out of service.

Locking in a Customer

With the needs of the aerospace market highly specialized, whether its engine turbine blades, or the large wing ribs for the Airbus’s giant A380, there is very little company switching among airplane manufacturers. Witness its relationships with both engine makers Pratt & Whitney and GE that go back over 45 years. Berkshire is assured of solid growth in an industry that is highly technical, needs manufacturing on a mammoth scale, and has high cost barriers to entry for potential competitors.

© 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.

NV Energy Reaches $4.3 million settlement over Coal-Fired Generating Station

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NV Energy, a subsidiary of Berkshire Hathaway Energy, has reached a settlement in regards to the Reid Gardner Generating Station, which is located near Moapa, Nevada.

The $4.3 million settlement comes as NV Energy is working to close the plant as the result of a 2013 vote by the Nevada Assembly to shut down the plant, which was one of the nation’s dirtiest.

Three of the plant’s 100-megawatt generating units have already been decommissioned, and the remaining 257-megawatt generating unit is scheduled to cease operation in 2017.

Settlement to Bring Health and Wellness Benefits

$1.5 million of the settlement, which is the result of a lawsuit filed by the Moapa Band of Paiutes and the Sierra Club, will go to provide a community health wellness center on the Moapa Band of Paiute Indians reservation.

The remaining $2.7 million of the settlement will be used to monitor air quality and purchase water rights.

The settlement will be paid by NV Energy and NV Energy and the California Department of Water Resources.

The Moapa Band of Paiutes has long complained of respiratory problems related to coal ash. They have been supported in their efforts to close the plant by Nevada senator Harry Reid.

Senator Reid welcomed news of the settlement.

“For years the band has suffered the consequences of breathing dangerous dirty air from the Reid-Gardner coal plant and this settlement is a step forward. While the settlement will provide relief and help make the tribe’s home healthier and safer, no amount of money can pay for the sickness caused by a half-century of pollution from the coal plant. The Moapa Band of Paiutes and all Nevadans deserve a clean, healthy environment to raise their families in and pass on to their children.”

A Dwindling Number of Coal-Fired Plants

Most of Nevada Energy’s power comes from cleaner-burning natural gas generating stations, however the company still produces power from the 255 megawatt coal-fired Navajo Generating Station in Page, Arizona, and the 522 megawatt coal-fired North Valmy Generating Station in Valmy, Nevada. Both plants are partially owned by NV Energy.

On July 28, 2014, the EPA finalized a plan to cut pollution from the Navajo Generating Station in order to reduce the haze around nearby national parks and wilderness areas.

Berkshire Moves Toward Renewable Energy

Berkshire Hathaway Energy has already invested more than $15 billion in renewable energy generation projects that are under construction and in operation through 2014, and has pledged to invest up to an additional $15 billion going forward.

© 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.

GEICO Expands Availability of Ridesharing Coverage to Pennsylvania drivers

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Recognizing the growing popularity of ridesharing, which has seen Uber go from zero revenue in 2009 to over $10 billion today, and the proliferation of a host of competitors, including Lyft, Sidecar, and Carma, automobile insurer GEICO is continuing to expand the availability of its ridesharing insurance coverage.

Real-time ridesharing that uses an automated system to match drivers and riders has in a few short years moved from a fringe mode of transportation to a powerful alternative that has taxi and car services up in arms. Along the way, it has required new forms of liability coverage that are different than those offered to both personal and commercial drives.

GEICO first entered the market in February in Virginia, and has been selling a ridesharing product in Georgia, Virginia, Maryland and Texas, and is now expanding its ridesharing offering to drivers in Pennsylvania.

Replaces the Personal Auto Policy

GEICO’s ridesharing product replaces the driver’s personal auto policy and provides coverage both for personal and ridesharing use.

The coverage is billed as a Hybrid Policy that regardless of whether the driver is driving for personal needs, or is picking up a paid rider, provides coverage for liability, property damage, bodily injury, first party coverage, collision coverage, comprehensive physical damage coverage, and medical payments.

New and existing drivers that have been approved to drive for Uber (UberX and UberXL), Lyft, Sidecar and other services in Pennsylvania can now get the insurance coverage.

“With the rapid growth of ridesharing and Transportation Network Companies in Pennsylvania, we are excited to introduce a product that is specifically designed to meet the needs of ridesharing consumers,” said Nancy Pierce, GEICO regional vice president. “Our product offers customers a complete insurance solution at an affordable price along with the outstanding customer service they can expect from GEICO.”

“Rideshare drivers have unique insurance needs that go well beyond a traditional auto insurance policy,” said Othello Powell, director of GEICO commercial lines. “We created this product as a low-cost solution that covers both personal and ridesharing use and other on-demand services.”

GEICO says it will offer the coverage through GEICO Commercial at a price significantly lower than taxi and commercial rates.

© 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.

BHSI Begins Underwriting Marine Insurance in Australia and New Zealand

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As Berkshire Hathaway Specialty Insurance Company (BHSI) continues to expand in Australia and New Zealand, the company has announced that it has begun underwriting Marine Insurance in both countries.

The addition of marine coverage further rounds out BHSI’s offerings in Australasia. The company recently launched property, casualty, executive & professional and healthcare lines in Australia, as well as property, casualty and financial lines in New Zealand.

BHSI appointed Dimitry Zilberud as Head of Marine, and Mark Dixon as Marine Manager.

Through its local offices in Auckland, Sydney and Melbourne, BHSI now offers Marine Cargo (Ocean and Inland), Cargo Stock Throughput (STP), Carrier Goods in Transit, Carriers Liability, and Marine Project Cargo coverage.

“We are taking a flexible approach to marine risks, and are pleased to have Dimitry and Mark aboard to provide tailored solutions for customers and brokers navigating these exposures,” said Chris Colahan, President, Australasia Region, BHSI.

Dimitry Zilberud has nearly two decades of marine underwriting experience. Dimitry was most recently the Marine Underwriting Manager, Australasia at HDI-Gerling. Before that, he served as Marine Underwriting Manager, NSW/QLD, for ACE Insurance and was the Business Development Manager at WE COX London UK.

Mark Dixon was most recently Northern Region Marine Underwriting Manager and Senior Marine Underwriter, at HDI-Gerling. Mark has also held various Marine and Distribution positions for both Brokers and Insurers, and a graduate of the Royal Australian Naval College (RANC).

Zilberud and Dixon are both based in BHSI’s office in Sydney.

© 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.

Special Report: Breakthrough Aims to Change the Way You Drink Milk

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Go into any quick service restaurant and you will find machines dispensing soda and noncarbonated beverages, such as lemonade or fruit punch, but don’t expect them to be dispensing milk. The problem is that milk ships in bulky cartons, must be kept refrigerated, and has a limited shelf-life. It’s a problem that has vexed dairy producers and retailers alike.

That’s All About to Change

Cornelius, Inc. and Dairyvative Technologies, a Wisconsin-based developer of a patented process that allows pasteurized milk to be concentrated to a liquid that has one seventh of its original volume, are looking to change the way milk is shipped, stored, and dispensed.

Cornelius has signed a strategic partnership agreement with Dairyvative that makes Cornelius the exclusive provider of equipment to hold and dispense the concentrated milk provided by dairies using Dairyvative’s patented SEVENx technology.

One of the newest members of the Berkshire Hathaway family, Cornelius was acquired for $1.1 billion on January 2, 2014, by Berkshire’s wholly owned Marmon Group.

With 4,500 employees, and manufacturing facilities in seven countries, spanning North America, Europe, and China, Cornelius provides beverage dispensing technology to leading food service and retail companies, including PepsiCo, Coca Cola, McDonald’s, Yum, Starbucks, and Burger King.

All of these companies and more are potential customers for Dairyvative’s new technology.

A Whole New Way to Store Milk

Dairyvative claims its SEVENx technology “allows pasteurized milk to be concentrated to a liquid that has one seventh of its original volume. The lactose-free end product is shelf-stable without refrigeration for up to 6 months. The process also keeps milk proteins intact, maintaining nutrient and flavor profiles.”

Unlike milk treated with Ultra-high temperature processing (UHT), SEVENx technology has relatively minimal thermal treatment by comparison.

“I have been working on this process for 28 years,” said Dr. Charles E. Sizer, founder and CEO of Dairyvative Technologies. “There have been a lot of hurdles in maintaining the functionality and freshness of the product.”

One of the first markets for the SEVENx technology will be in quick service restaurants, where using Cornelius’s dispensing technology, the new dispenser will allow individual consumers the choice of adding several different flavors to the milk. Cornelius’ technology also enables the milk to be carbonated during dispensing.

Looking for a World Leader

“We knew Cornelius is the leader in dispensing products, so we approached them and signed an exclusive deal,” Dr. Sizer explained.

While Dairyvative touts the concentrated milk as having the “natural fresh taste of milk,” it does note that it is slightly sweeter due to the conversion of lactose into the sugars glucose and galactose.

Dairyvative also says that the cost for dairy processors to produce the concentrated milk is low, as much of the equipment that processors need they already have in place. They also note that the long shelf-life means less spoilage and returns, lower transportation costs, and environmental benefits such as less electricity needed for milk storage.

Reducing the Carbon Footprint

Reducing the carbon footprint is very important to Dr. Sizer. He notes that currently it takes 2.05 kilos of carbon to bring 1 kilo (1 liter) of milk to the consumer.

“We can reduce that by 20%-30% right out of the gate,” Dr. Sizer said. “And by locating in close proximity to the dairy, we can reduce it even further.”

Expect to see the U.S. rollout of the new milk product in 2016, and Dairyvative is already in discussion with multi-national dairies for international markets.

© 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.