Monthly Archives: February 2016

NASDAQ Acquisition of Marketwired to Increase Pressure on Berkshire’s Business Wire

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Berkshire Hathaway’s press release service Business Wire has already been facing pressure from companies moving to Twitter and other social media to release financial information, now NASDAQ is moving to acquire competitor Marketwired LP in a move that could further erode their business.

NASDAQ says the acquisition will close in the first quarter of 2016, barring any regulatory hurdles.

No price for the acquisition has been announced, but Reuters reports that the company is valued in the range of $200 million. NASDAQ will be using both debt and cash for the acquisition.

Founded in 1983, Toronto-based Marketwired states that it provides news distribution and social communication solutions to public relations, investor relations and marketing professionals who represent companies of all sizes, from start-up to Fortune 500.

Acquired by Berkshire Hathaway in 2006, Business Wire currently has some 500 employees in 32 bureaus across the globe, and bills itself as the n the global leader in press release distribution and regulatory disclosure.

© 2016 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.

Forest River has Recession in Rear View Mirror

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The Great Recession that began in 2008 had a crushing effect on RV manufacturers, as the recreational vehicle became something that many middle-class families and retirees could no longer afford. Sales plunged, and in some cases companies went belly up.

Fortunately, Forest River, a wholly-owned unit of Berkshire Hathaway, not only had Berkshire’s mountain of cash to weather the downturn, but was even able to pick up some key bolt-on acquisitions during the recession.

In 2008, Forest River acquired leading RV manufacturer Coachman RV for next to nothing when the company ran into severe cash flow problems.

Less than a decade later, Coachman RV is one of Forest River’s plum divisions that is helping it post the strongest sales numbers since before the recession.

Forest River’s sales have grown steadily since 2009, with six straight years of sales increases.

The great news is that Forest River’s sales have finally recovered to pre-recession levels.

Industry-wide, 2015’s recreational vehicle shipments reached 374,246 total units, and on a month-to-month comparison, November 2015 had a 3.9 percent increase above November 2014, and December 2015 achieved an even more impressive 4.8 percent growth as compared to December 2014.

The sales figures meant the strongest December total in ten years. Additionally, all months last year except May and July were up over the comparable months in 2014.

The increases are industry-wide, as manufacturers such as Thor Motor Coach and Fleetwood RV have seen similar increases, and the growth was across all classes of recreational vehicles.

Specifically, Class A motorhomes, which are the largest, most luxurious and expensive, grew modestly with a 0.2 percent increase over 2014. Class B RVs, which are camping van conversions or van campers, had a 9.8 percent increase, and Class C motorhomes, which are truck-chassis-mounted vehicles that are more modestly priced than Class A, achieved the biggest growth increase overall at 15.8 percent.

“We have erased the dip caused by the Great Recession with RV shipments nearing record levels,” said Frank Hugelmeyer. President of the RVIA – Recreation Vehicle Industry Association, at the industry’s National RV Trade Show. “Fueled by low interest rates, affordable gas and steady consumer confidence, RV shipments should reach 375,000 units next year. But beyond the strong short term outlook, we can all rejoice that RVs continue to gain popularity in the outdoor marketplace and are seen as ‘cool’ in traditional and social media.”

Total recreational vehicle sales industry-wide are projected to reach 375,000 units in 2016, according to the RVIA.

© 2016 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 Ups Digital Signage with Cineplex Digital Media

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Cineplex Digital Media, previously known as EK3, has been come an officially-endorsed signage provider to American Dairy Queen.

“We are honored to have been selected by American Dairy Queen Corp. as its provider of digital menu board solutions,” noted Cineplex Digital Media President Nick Prigioniero. “It is a privilege to collaborate with this internationally recognized, top-tier brand.”

Dairy Queen selected the company after its RFP brought thirty proposals from a variety of signage providers.

“Broadening our digital merchandising initiatives is a key strategic priority for us,” Janna Rider, Director of Digital Merchandising for American Dairy Queen, said. “It was imperative to our brand that we select a business partner that will address not only the present requirements but also provide innovative, integrated digital solutions that meet the expectations of our future ‘fans,’ while supporting the needs of our franchisee community.”

Cineplex Digital Media uses proprietary content management system software to manage its digital menu board networks, which enables franchisees to manage their in-store digital marketing programs from a single access point, giving them maximum flexibility and more control.

Some forty Dairy Queens so far have already installed  the digital signage across the United States.

For more information on Dairy Queen’s expanding business, read the Mazor’sEdge special report on Dairy Queen.

© 2016 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.

CTB Reaches Overseas to Acquire Manufacturer

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Berkshire Hathaway’s CTB, Inc., a manufacturer and marketer of systems and solutions for preserving grain; producing poultry, pigs and eggs; processing poultry; and for various equestrian and industrial applications, has reached overseas and acquired Holding Hamon Développement.

The French company is a designer and manufacturer of buildings for poultry keeping, processing plants and industry, and parent company of Serupa SAS and Mafrel SAS.

The company has its headquarters in Merdrignac, France, west of Rennes.

Terms of the transaction were not disclosed.

The two companies focus on an integrated offering of poultry buildings and equipment to ensure a seamless experience for the customer.

Serupa is a turnkey designer and manufacturer of poultry buildings as well as buildings used for meat processing plants and other industries.

Mafrel is a supplier of building kits and poultry equipment such as that supplied by CTB’s Roxell, Fancom and Chore-Time business units.

The acquisition includes the companies’ facilities in Merdrignac comprising 16,500 square meters (177,600 square feet).

Serupa and Mafrel together employ approximately 100 people. CTB does not anticipate a change in employment levels as a result of the acquisition. Serupa and Mafrel look forward to continuing their relationships with their preferred suppliers.

Victor A. Mancinelli, CTB chairman and chief executive officer, noted that the acquisition further broadens CTB’s offering to the poultry industry with another industry-leading company.

“Serupa’s poultry building quality is highly respected, as are CTB’s poultry production and poultry processing equipment brands,” said Mancinelli. “In fact, CTB’s Roxell subsidiary is already a supplier to Serupa.”

“The acquisition presents opportunities for CTB equipment brands to strengthen their positions by providing turnkey solutions to their global customers, and, in addition, enhances the overall CTB position in the important French-speaking markets where Serupa already has a strong customer base,” continued Mancinelli. “Serupa has significant expertise in turnkey supply, building design, integration of buildings with environmental packages and supply of aviary systems,” Mancinelli concluded.

Serupa was founded in 1974 by Bernard Hamon. The company has most recently been led by his sons Jean-François Hamon and Patrice Hamon. Philippe Vernet joined the firm as deputy managing director in 2014. After the acquisition, Mr. Vernet will become President of the companies, and Jean-François Hamon will stay on in a support and transition role. Operations will continue in the existing facilities in France.

Commenting on the acquisition, Jean-François Hamon said, “Patrice and I are pleased to see Serupa and Mafrel be incorporated into the CTB group of companies. We see great opportunities for Serupa to grow its market by including more products from CTB’s business units and by expanding to additional markets where the CTB companies already have a strong presence.”

Vernet added, “Serupa’s products complement CTB’s for customers in the poultry raising and processing sectors. Joining the CTB group of companies will enable Serupa to benefit from CTB’s worldwide network of distributors as well as offering Serupa’s employees the opportunity for international career development.”

© 2016 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.

Lubrizol to Rebuild Pennsylvania Facility Destroyed by Fire

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The Lubrizol Corporation, a wholly-owned subsidiary of Berkshire Hathaway, will rebuild a $10 million warehouse that was destroyed in a fire on Tuesday, Nov. 17, 2015.

The warehouse was acquired by Lubrizol in early 2015 when the specialty chemicals-manufacturer purchased the oilfield chemicals business from Weatherford International PLC.

At the time, the deal was the biggest “bolt-on” acquisition Lubrizol had made since it was acquired by Berkshire Hathaway in 2011.

The landlord, Chapman Properties, owners of the Leetsdale Industrial Park, has presented plans to the Leetsdale Planning Commission to rebuild the Lubrizol Corp. Oilfield Chemistry site.

The Leetsdale Industrial Park is a two million square foot mixed-use facility located on the Ohio River and Route 65 outside of Pittsburgh, Pennsylvania.

Under the terms of Lubrizol’s lease with Chapman Properties, Chapman has 180 days to rebuild the warehouse from the date of the fire, which began when workers were pouring hydraulic fracturing chemicals into a production tank and quickly grew to a five-alarm fire.

About Lubrizol

Based in Wickliffe, Ohio, Lubrizol owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 9,000 employees worldwide. It sells its specialty chemical products in over 100 countries.

© 2016 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.

Duracell Deal Finally Scheduled to Close in February

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2016 is starting off with some heavyweight acquisitions for Berkshire Hathaway.

Berkshire’s acquisition of aerospace manufacturer Precision Castparts closed on January 29, and February should be when Berkshire finally swaps it shares of Procter & Gamble’s stock for the company’s Duracell division.

With Duracell’s $2 billion in annual revenue, Berkshire is acquiring the market leader in batteries for the home and workplace. The company has highly recognizable brands that consumers in home and work settings are willing to pay more for than private label store brands.

According to the company, Duracell’s CopperTop® and Quantum® batteries command the highest average percent of spending among battery brands, with 33% and 16%, respectively.

Combined, the two product lines now account for close to 50% of the market.

Duracell’s growth has come at the expense of competitors Energizer and Rayovac.

Energizer has seen its market share shrink from 40% in 2012 to 36% in 2014, and Rayovac, which is a much smaller player, has seen its market share drop from 8% in 2012 to just 5% in 2014.

The total alkaline battery market in the U.S. alone is roughly $2.2 billion a year, with Duracell just over $858 million in alkaline batteries sales a year, or roughly 43% of the market.

Of the away-from-home market, healthcare/medical uses $70 million worth of batteries annually, followed closely by manufacturing, which consumes approximately $61 million worth of batteries annually.

A Mountain of Tax Savings for Berkshire

Berkshire’s not only acquiring the market leader for batteries, it’s also receiving a Mount Everest-sized bundle of tax-free cash.

By acquiring Duracell, Berkshire is able to cash out its $4.7 billion stake in Procter & Gamble that 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 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.

For Berkshire, the Duracell deal shines brightly indeed.

© 2016 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.

Benefits From Energy Imbalance Market Top $45 million

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Berkshire Hathaway Energy’s participation in the western Energy Imbalance Market continue to meet projections. The company has two utilities, NV Energy and PacifiCorp, participating.

According to the California Independent System Operator (ISO), total benefits realized in the 2015 fourth quarter were $12.29 million, which increases the total benefit since the November 2014 EIM launch to $45.7 million.

These benefits accrue to all EIM participants and their customers, as well as the ISO.

The totals are in line with initial projections and as expected, increased participation benefits all EIM participants. Benefits for October were $2.51 million, down slightly from the summer months because of reduced transmission capacity resulting from a line outage.

With the line restored to service, benefits increased again in November to $3.49 million. With NVE’s entry into EIM in December, the benefits jumped to $6.29 million, including $840,000 that accrued to NVE and its customers and also additional benefits to PacifiCorp and ISO customers because of NVE’s participation and additional transfer capability that they bring to the EIM operation.

NV Energy entering the real-time market in December 2015 produced significant benefits because their participation increases transfer capability between the participants. Interregional transfers enabled in EIM allows each balancing area to take advantage of lower cost resources in other areas.

Besides the benefits produced by interregional transfers, savings were also realized by avoiding having to reduce renewable resources’ output in the ISO control area during times of oversupply. The total avoided energy reduction for Q4 was 17,573 megawatt hours, which greatly outpaced the avoided reductions of 828 megawatt-hours in Q3. Avoiding the renewables output reductions in Q4 displaced an estimated 7,521 metric tons of carbon emissions.

About the Energy Imbalance Market

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region. The only real-time energy market in the Western U.S., advanced ISO market systems automatically balance supply and demand for electricity every fifteen minutes, dispatching the least-cost resources every five minutes.

© 2016 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 Adds Investment Sales Team in Houston

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Berkshire Hathaway’s joint venture Berkadia, a leading commercial real estate company, has hired an eight-person multifamily investment sales team in Houston.

The team previously worked together in CBRE’s Capital Markets Multi-Housing Group based in Houston, where they focused on Houston, San Antonio and other Texas markets. All will report to Head of Investment Sales Keith Misner, effective immediately.

“This group of individuals is known throughout the industry as one of the top multifamily investment sales teams in the country, specifically in Houston,” said Keith Misner. “Adding a team of this caliber—which has worked together for a number of years—immediately strengthens our Texas presence. We’re truly excited for them to join Berkadia.”

The team is led by Senior Managing Director Ryan Epstein and Managing Director Clint Duncan and includes Associate Directors Wes Breeding and Jennifer Ray. They will work closely with Berkadia’s existing brokers and mortgage bankers in Houston and across the state to provide integrated investment sales, mortgage banking and servicing solutions.

“Berkadia is one of a kind because its platform strengthens the company’s ability to offer clients comprehensive real estate solutions,” said Epstein. “Our entire team looks forward to elevating the company’s presence in Texas and leveraging a full suite of products to help current and future clients alike.”

Since 2006, the team has marketed and sold assets valued at more than $4.5 billion and has continually been ranked as top producers nationally, working with a diverse client base of REITs, pension funds, private investment companies and local and national developers.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, 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 owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 2016 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: For Berkshire Hathaway, Precision Castparts is Easy as One, Two, Three

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Now that Berkshire Hathaway has acquired aerospace manufacturer Precision Castparts, exactly what has Berkshire got for all its billions?

One: Berkshire gets a fast-growing company. Precision Castparts’ annual growth rate has been 23% over the past ten years.

Two: Berkshire gets a company with a wide moat, as the costs associated with the aerospace industry create high barriers to entry.

Three: Berkshire gets a company that will benefit from the explosive growth in commercial air travel in India and China over the next two decades.

About Precision Castparts

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.

Strong Management in Place

Unlike both Heinz and Kraft, where 3G Capital took on the duties of replacing senior management, Berkshire is lokking 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.

An Area Growth for Berkshire

With the Great Recession now in the rear view mirror, airlines are placing large orders to replace aging fleets. These 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.

As Berkshire plots its course in the 21st century, it 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.

© 2016 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.

Lubrizol Opens CPVC Compounding Plant in Dahej, India

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The Lubrizol Corporation, a wholly-owned subsidiary of Berkshire Hathaway, has announces the official opening of a chlorinated polyvinyl chloride (CPVC) compounding plant in Dahej, India.

According to the company, the opening represents the culmination of Lubrizol’s latest industry leading investments in its global expansion of the company’s FlowGuard®, BlazeMaster® and Corzan® compound manufacturing sites.

These most recent investments, which were announced in 2013, total more than $200 million (INR1300 CR) and also include the 2015 opening of a resin manufacturing facility as part of a joint investment in Rayong, Thailand, as well as an expansion of the company’s manufacturing facility in Louisville, Kentucky.

Strategically located in the Gujarat Industrial Development Corporation (GIDC), which is one of the largest chemical parks in India, Lubrizol is the first major global producer of CPVC to establish operations in India.

With capacity to produce approximately 55,000 metric tons of compounds annually, the more than $50 million U.S. investment (INR 325 CR) in this plant further solidifies Lubrizol’s commitment to the Indian market.

Lubrizol touts the site’s prime location positions the company to serve not only the growing Indian market, but to also support the emerging growth of its FlowGuard®, BlazeMaster® and Corzan® businesses in South Asia, the Middle East and East Africa.

“Our recent expansion efforts, combined with our existing operations, positions Lubrizol to continue to be a strong market leader for many years to come,” stated Eric Schnur, president of Lubrizol Advanced Materials. “We are pleased to have an unmatched global footprint that provides our partners with reliable, high quality compounds to enable them to achieve their overall growth objectives.”

“With construction projects in non-metro cities expected to continue to increase in India, and with the central government of India aiming to build more smart cities, the demand for trustworthy piping systems is expected to rise,” said Manoj Dhar, head of TempRite® Engineered Polymers in South Asia.

“Lubrizol is dedicated to providing our customers with the highest quality piping products through our insistence of using only the best raw materials, and our new India compounding plant will use the industry’s most advanced compounding technology used in our FlowGuard, BlazeMaster and Corzan products developed in the U.S. and employed in our manufacturing sites around the globe.”

About Lubrizol

Based in Wickliffe, Ohio, Lubrizol owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 9,000 employees worldwide. It sells its specialty chemical products in over 100 countries.

© 2016 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.