Monthly Archives: September 2015

Pat Griffin Named President of Marmon-Herrington

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Pat Griffin has been named president of Marmon-Herrington, a unit of Berkhire Hathway’s Marmon Group.

Prior to joining Fontaine Modification last year, Griffin held executive leadership positions in engineering, quality, and Lean Six Sigma with Wabash National Corporation and Hayes Lemmerz International. He holds a Bachelor of Science degree in welding engineering from The Ohio State University, and a Master of Arts in organizational management from Tusculum College.

“We are fortunate to have a person of Pat’s caliber to lead Marmon-Herrington into the future,” says Kent Finkbiner, group president of MHT Commercial Truck. “Having worked globally with both OEM and aftermarket providers in heavy-duty truck, automotive, and rail transportation markets, he brings a knowledge base which will serve us well.”

About Marmon-Herrington

Headquartered in Louisville, Kentucky, Marmon-Herrington is a developer of drivetrain technology with roots dating back to the 1850s.

Originally formed in 1851 as the Nordyke and Marmon Machine Company, which specialized in the manufacture of flour mill machinery, the company entered the emerging auto industry around 1900. Today, the company offers durable axles and transfer cases for trucks and specialized vehicles, along with OEM solutions and installation kits. Its products are used in a wide range of applications, including military, forestry, mining and construction.

© 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.

Sudan First African Country for BYD

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BYD Co. Ltd., the Chinese battery and vehicle-maker that is 10% owned by Berkshire Hathaway, has reached a deal to sell 10,000 vehicles to Sudan’s state-run company GIAD Motor Co Ltd.

The cars will include both hybrid and traditional gasoline-powered vehicles, and the deal represents the company’s first major order in Africa.

The vehicles’ power systems and key components will be built in China and the cars will be assembled in Sudan. BYD has assembly plants for gas-powered cars in Sudan and Egypt.

BYD’s Sudanese partner, Giad Motor Co. Ltd., is a subsidiary of Sudan’s Giad Group, the only corporation with a license to produce vehicles in the country, as well as its largest state-owned company.

BYD’s Sale on the Rise

Despite recent turmoil in the China’s stock markets, BYD has had a strong year for global sales.

BYD’s revenues are up 21% to 30.4 billion yuan ($4.75 billion) for the first six months of 2015. Gross profits were up 21.4% for the same period at 4.6 billion yuan with car sales up 14% to 210,000 units.

Berkshire and BYD

In 2008, Berkshire Hathaway bet on BYD’s potential and purchased 225 million shares, and today owns roughly 9.1% of the company.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 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.

Axalta to Build Global Innovation Center at The Navy Yard in Philadelphia

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Axalta Coating Systems (NYSE: AXTA), a leading global supplier of liquid and powder coatings, announced that it will build its new Global Innovation Center at The Navy Yard in Philadelphia.

The 175,000 square foot facility will house Axalta’s global research, product development, and technology initiatives and partner with the Company’s other technology centers in the Americas, Europe and Asia-Pacific.

The approximately $70 million project is being developed by Liberty Property Trust and Synterra Partners, and Axalta has entered into a long-term lease agreement for the building.

Project construction is expected to be complete in late 2017.

Upon reaching full operation in 2018, Axalta will bring at least 190 new jobs to Philadelphia with the possibility of additional positions in the future.

Axalta’s global corporate headquarters is already located in Center City Philadelphia, and its North America headquarters is located in Glen Mills, Pennsylvania with a customer training center in Exton, Pennsylvania.

Berkshire and Axalta

In April 2015, Berkshire purchased from The Carlyle Group 20 million of Axalta’s common shares for an aggregate purchase price of $560 million, or $28.00 per share.

Originally a unit of Dupont, Axalta is a leading global coatings company “dedicated solely to the development, manufacture and sale of liquid and powder coatings.”

Could the company be a potential acquisition target for Berkshire Hathaway’s Lubrizol Corporation? We will have to wait and see.

© 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.

Commentary: Accident Bad Timing for BNSF in Tribe’s Lawsuit

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Talk about bad timing, a BNSF 98-car ethanol train that derailed on September 19, in southeastern South Dakota, adds fuel to the fire for a key portion of the argument in a Native American tribe’s lawsuit against the railroad.

The Swinomish Indian Tribal Community in the state of Washington filed a lawsuit in April 2015 against BNSF alleging that the railroad had violated an Easement Agreement that allowed trains to cross a portion of the tribe’s land. The Easement Agreement enables BNSF to bring Bakken crude oil to the Tesoro refinery in Anacortes, Washington.

U.S. District Judge Robert Lasnik on Friday, September 11, 2015, ruled that BNSF’s request to have the lawsuit dismissed or stayed was denied. The ruling opened the way for the tribe to press its lawsuit, which expressed environmental concerns as a key part of its argument.

Under the terms of the 1991 Easement Agreement, BNSF is allowed to run one 25-car train per day in each direction. The tribe sued contending that BNSF was running as many as six 100-car “unit trains” per week.

A Deal is a Deal

“A deal is a deal,” said Swinomish Chairman Brian Cladoosby. “Our signatures were on the agreement with BNSF, so were theirs, and so was the United States. But despite all that, BNSF began running its Bakken oil trains across the Reservation without asking, and without even telling us. This was exactly what they did for decades starting in the 1800s.”

Under the terms of the Easement Agreement, the Tribe agreed not to “arbitrarily withhold permission” for BNSF’s request to increase the number of trains or cars, and the tribe’s environmental concerns are a key part of its argument that withholding approval would not be arbitrary.

Bridges Cross Fishing Grounds

The Tribe contends that its refusal to grant permission is not arbitrary and is “Based on the demonstrated hazards of shipping Bakken Crude by rail, paired with the proximity of the Right-of-Way to the Tribe’s critical economic and environmental resources and facilities — and the substantial numbers of people who use those resources and facilities on a daily basis — the Tribe is justifiably and gravely concerned with BNSF’s shipment of Bakken Crude across the Right-of-Way in a manner and in quantities at odds with the explicit terms of the Easement Agreement.”

The Swinomish, who call themselves “The People of the Salmon,” are concerned that trains carrying Bakken crude oil run over bridges spanning the Tribe’s fishing grounds in the Swinomish Channel and Padilla Bay. They also note that the track runs across the “heart of the Tribe’s economic development enterprises,” which includes the Tribe’s Swinomish Casino and Lodge, a Chevron station and convenience store, an RV Park, and the Tribal waste treatment plant.

The Tribe stated that these enterprises are the “primary financial source for funding of the Tribe’s essential governmental functions and programs.”

The 1991 Easement Agreement granted the Right-of-Way for an initial 40-year term, along with two 20-year option periods. The current agreement will expire no later than 2071.

The tribe is seeking a “permanent injunction prohibiting BNSF from (1) running more than one train of twenty-five cars or less in each direction over the Right-of-Way per day and (2) shipping Bakken Crude across the Reservation.”

The Swinomish are also seeking monetary damages for the prior trespasses and breach of contract in an amount to be determined at trial.

The South Dakota Accident

While the South Dakota accident was an ethanol train not an oil train, it was exactly the type of accident the Swinomish are concerned about. Seven tank cars derailed with three spilling their contents of ethanol, and one catching fire. The fire spread to a nearby pasture, which was put out by local firefighters, and BNSF hazardous materials teams aided in the clean up. NTSB investigators are currently interviewing the train’s engineer and conductor as they investigate the cause of the accident.

Fortunately, there were no deaths or injuries from the accident, which happened in a rural area that did not cross a body of water. However, the financial damages for BNSF may be far greater than three punctured tank cars if the Swinomish are able to show that their environmental concerns are grounded in reality, and that they have the proof to back it up.

© 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.

Berkadia Arranges $21.9 Million Financing for Houston Commercial Property

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Berkadia has arranged $21.9 million in financing for One Sugar Creek Center, the Comerica Bank Building, in Houston, Texas.

The fixed-rate loan was secured by senior directors Corby Chaffin and Steve Comly of Berkadia’s Houston and Philadelphia offices, respectively, through a relationship with a life insurance company. The seller was represented by Jared Chua and Bernard Branca of CBRE’s Investment Properties – Institutional Group in Houston.

Berkadia originated the financing for Equus Investment Partnership IX LP, a discretionary fund managed by Equus Capital Partners Ltd.

The deal is the first in the Houston market for Equus, which is looking to buy additional buildings.

Built in 1983, the 193,988-square-foot, 11-story building sits on 4.5 acres at 1 Sugar Creek Center Boulevard. At the time of the closing, the property was 89 percent occupied.

About Berkadia

Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA. The company was among the top Freddie Mac and Fannie Mae multifamily lenders for 2013.

Berkadia was founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation.

© 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 Specialty Insurance Adds Inland Marine Insurance Products to U.S. Offerings

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Berkshire Hathaway Specialty Insurance (BHSI) has launched a full line of Inland Marine Insurance products in the U.S., including Builder’s Risks, Contractor’s Equipment, Installation Floaters, Inland Transit, Motor Truck Cargo, Warehouse Legal Liability and miscellaneous floaters.

Originally an outgrowth of marine insurance, inland marine insurance covers property that is mobile in nature or requires unique valuation that they own or have in their care. Among the types of property that are covered are those related to construction, transportation, fine art and communications.

“Our new Inland Marine products are designed to be a strong complement to our ocean cargo and contractor’s builder’s risk coverages,” said John Evans, Vice President, Marine, BHSI. “With our comprehensive suite of products and in-house expertise, we are well positioned for the opportunities of the marine space and look forward to providing market-leading service and solutions to our customers and distribution partners.”

BHSI’s Inland Marine coverages are available on an admitted basis in all 50 states and underwritten using American Association of Insurance Services (AAIS) policy wordings.

© 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 Offers its Ridersharing Coverage in Two More States

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GEICO is continuing to expand the availability of its ridesharing insurance coverage, which provides insurance coverage to drivers for ridesharing services such as Uber, Lyft, Sidecar, and Carma. The two newest states for GEICO’s coverage are Connecticut and Ohio.

“Being close to New York City makes Connecticut a key market for rideshare drivers,” said Rick Hoagland, GEICO regional vice president.

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

“Ohio has seen substantial growth in its rideshare market, and GEICO wants to make sure these drivers are properly insured,” said Don Robinson, GEICO regional vice president. “Our product eliminates coverage gaps for rideshare drivers and delivers a complete insurance solution at an affordable price along with GEICO’s outstanding customer service.”

“Because they use the same vehicle for personal use and to provide rides for a fee, rideshare drivers have unique insurance needs that go well beyond a traditional auto insurance policy,” said Othello Powell, director of GEICO commercial lines. “Our policyholders appreciate comprehensive coverage and peace of mind, which our new product can give them.”

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, Pennsylvania, and Texas.

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.

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.

Commentary: Is there Money for Berkshire in an A-B InBev Merger with SABMiller?

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As soon as the news hit that a megamerger was in discussion between Anheuser-Busch InBev and SABMiller, my first thought was “Is there money to be made for Berkshire?”

There sure is.

A merger of Anheuser-Busch InBev and SABMiller would create a $275 billion company, and would need somewhere around $100 billion in financing to complete the deal.

With Anheuser-Busch InBev controlled by Brazilian private equity firm 3G Capital Management, it would be logical that such a mammoth deal could use at least some financing from Berkshire Hathaway.

The companies previously collaborated on 3G’s Burger King takeover of Tim Hortons, and 3G and Berkshire’s worked jointly to takeover A. J. Heinz, and later to merge it with Kraft Foods Group.

Berkshire and 3G clearly like working together because each provides half of a winning formula. Berkshire produces a lot of cash that needs to be put to work, and 3G is an acquirer of large-scale, high quality assets for which it provides management that aggressively wrings out savings that flow back to shareholders.

Any takeover by Anheuser-Busch InBev of SABMiller is sure to face antitrust issues, as the combined company would own 30% of the global beer market, but if it could get by regulators, here’s what to expect.

Preferred Stock Financing

For the past decade, Warren Buffett has especially used the issuance of preferred shares that pay Berkshire a fixed dividend in exchange for billions in financing.

Buffett’s love of preferred stock financing provided much needed cash to Goldman Sachs, Wrigley, and Bank of America during the Great Recession, and more recently helped 3G finance its Burger King/Tim Hortons merger and the A. J. Heinz and subsequent Kraft Heinz deals. In each deal, Berkshire ended up receiving juicy dividends that ranged from 6% in the case of Bank of America to 9% with Burger King/Tim Hortons.

Common Stock for Berkshire

An Anheuser-Busch InBev/SABMiller merger would likely give Berkshire a sizeable common stock position as well. For example, in providing financing for 3G’s Burger King takeover of Tim Hortons, Berkshire received warrants for 8,438,225 shares of the new combined company, Restaurant Brands International Inc., for a penny a share. The warrants came attached to 68,530,939 Class A 9.00% Cumulative Compounding Perpetual Preferred Shares, and gave Berkshire 4.18% of the outstanding Common Shares and 14.37% of the total number of votes attached to all outstanding voting shares of the Corporation.

Berkshire as the Linchpin

With 3G’s Burger King merger, Berkshire provided roughly 25% of the financing and was the linchpin that quickly brought other financing to the deal. When Warren Buffett wants in, others surely follow.

Look for Berkshire to take a portion of any Anheuser-Busch InBev and SABMiller deal if regulators ever allow it to happen.

© 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.

Dairy Queen Comes to Poland

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A blizzard in Poland won’t be a bad thing now that Dairy Queen has opened its first location.

Poland brings to 28 the number of countries outside the U.S. and Canada that have a Dairy Queen, and continues Berkshire Hathaway’s wholly-owned quick service restaurant brand’s expansion in emerging market.

The newly opened DQ® Treat store at Wola Park Mall in Warszawa will be joined by two additional locations before the end of the year, including a DQ Grill & Chill restaurant at the Wola Park Mall.

Just the Beginning

The three locations are just the beginning of a plan that will see Dairy Queen become a common sight in Poland. Expansion plans include 26 DQ Grill & Chill® restaurants and DQ Treat stores throughout the country over the next five years. The locations are being developed by franchisee Sparrow 4 Sp. Z.O.O.

“We believe there is an incredible growth opportunity in this region,” said John Gainor, CEO and President of International Dairy Queen, Inc. (IDQ). “Our partnership with Sparrow 4 Sp. Z.O.O. has allowed us to launch our brand in Poland. Their wealth of business experience and diverse portfolio across Europe is a huge asset to the Dairy Queen system as we continue to invest and build on our global brand equity.”

Expansion Into Eastern Europe

“Our strategy is to open franchises in emerging markets,” Dairy Queen’s president and CEO John Gainor says. “That’s why Poland is a logical choice. We are avoiding countries such as France where the competition is very well established.”

Poland is just the beginning in astern European, according Dairy Queen’s Jean Champagne, Chief Operations Officer — International Groups.

“This move is strategic. We are entering the Eastern European market at a time when Western brands are being embraced by a consumer base that is well informed on the importance of global brands,” Champagne said. “We look forward to working with a strong franchise partner in Poland. We see this as a launching pad for other contiguous countries in the region.”

The DQ system has more than 6,600 locations worldwide, 1,495 of which are outside the U.S. and Canada , and this summer opened locations in Kuwait and the United Arab Emirates.

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

BHSI Adds Construction Insurance to Australia Underwriting

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Berkshire Hathaway Specialty Insurance Company (BHSI) has begun providing comprehensive insurance and services for the construction industry in Australia, and has named a team of executives to oversee key areas of its construction insurance business.

Berkshire Hathaway’s Boston-based BHSI first entered the Australia market in April 2015, when it began providing all lines of General Business in Australia, and established operations in Sydney.

With its just announced coverage, BHSI is offering construction property, casualty, project professional indemnity, and project cargo insurance for construction classes in Australia and pairing coverage with in-house construction claims and engineering expertise.

“We are pleased to offer the Australian construction industry a multi-line insurance solution, backed by the deep expertise and financial strength of BHSI. Our team is rich in construction insurance experience and ready to provide sound, creative capacity and meaningful risk engineering to this important sector,” said Chris Colahan, President, Australasia Region, BHSI.

BHSI’s Construction Team

Cameron Holmes, Construction Manager. Cameron comes to BHSI with 15 years of construction and engineering experience. He was most recently National Underwriting Manager, Engineering, at IAG in Sydney. Prior to that, he was Underwriting Manager, Engineering, at Munich Re in London. He was Engineering and Property Underwriter at Munich Re in Sydney and, before that, Civil Engineer & Project Manager at Sinclair Knight Merz in Sydney. He holds a bachelor’s degree in Civil Engineering from the University of Sydney, a Graduate Certificate of Insurance from Deakin University, and an MBA and a Graduate Diploma of Financial Management from the University of New England.

Rob McNab, Underwriting Manager, Construction. Rob comes to BHSI with over a decade of experience focused on construction and engineering on both the underwriting and brokerage sides of the business. He was most recently Southern Region Manager, Construction & Engineering at CGU Insurance. He was also Major Projects Executive, Construction & Specialty Risks, Australasia, at Willis Australasia. He began his career as an Engineering Underwriter at QBE Insurance Australia Limited in Melbourne. He holds a Diploma of Financial Services from the Australian & New Zealand Institute of Insurance & Finance.

Mark Thompson, Senior Underwriter, Casualty. Mark comes to BHSI with 14 years of insurance industry experience with the last 5 years focusing on the construction industry. He was most recently Senior Casualty Underwriter at AIG in Sydney. Prior to that he was a Senior Account Executive at Marsh Australia and started his career as a Claims Adjuster at Aon UK. He holds a bachelor’s degree in Financial Services from Sheffield Hallam University, an Executive Certificate in Insurance from the University of Technology, Sydney, and is a Fellow of the Australian & New Zealand Institute of Insurance and Finance.

Patrick Whyte, Risk Engineering Manager. Patrick brings to BHSI 25 years of loss control and risk engineering experience. He was most recently Senior Risk Engineer at Allianz Global Corporate & Specialty in Sydney. Before that, he was Principal Consultant at the Australian Consulting Network Pty Ltd and Managing Principal at Marsh (Australia) Pty Ltd. He holds a bachelor’s degree in Chemical Engineering from the University of New South Wales and a master’s degree in Business Administration from the Australian Graduate School of Management.

David Cook, Claims Manager. David comes to BHSI from Suncorp Group, where he has spent the past seven years rising through the ranks to the role of Senior Claims Specialist, handling global, corporate, and major loss claims in Brisbane and more recently in Melbourne. He holds a Diploma in Financial Services from the Australian & New Zealand Institute of Insurance and Finance.

These new team members build on BHSI’s existing capabilities in Project Professional Liability, led by Matthew Clarke and Marine Project Cargo, led by Dimitry Zilberud.

All of these newly appointed executives are based in BHSI’s office in Sydney, except for Rob McNab who will be based in BHSI’s Melbourne office.

© 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.