Category: Acquisitions

Clayton Homes in $50 million Deal to Acquire Chafin Communities

Post author By David Mazor
Post date November 6, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s Clayton Homes is acquiring Chafin Communities, a Georgia home builder that builds extensively in northeast Atlanta.

The roughly $50 million acquisition will give Clayton Homes 1,100 building lots.

Chafin Communities’ principals, brothers Eric and Daryl Chafin, are staying on board to head up the new division. The two began working in construction as teenagers and founded their first construction company in 1966. The company’s 25 employees will all become Clayton employees.

Chafin Communities has constructed over 4,500 homes to date, and in 2014 Chafin Builders LLC/Chafin Communities ranked #13 in the Atlanta’s TOP 20 Home Builders List, based on Homes closed in 2013.

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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.

Tags Clayton Homes

Acquisitions Insurance National indemnity

Berkshire to Acquire Insurance Assets

Post author By David Mazor
Post date October 20, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s insurance unit, Tenecom Ltd, a subsidiary of National Indemnity, will acquire the non-life insurance assets of UK insurer Charles Taylor PLC.

Charles Taylor has begun disposing of its non-life insurance assets in order to concentrate on its life insurance business, and Tenecom Ltd will acquire the business assets of both Cardrow Insurance and Beech Hill Insurance.

financial details have been released other than that Charles Taylor will receive a final dividend from Cardrow and Beech Hill when the units are liquidated.

London-based Tenecom was originally known as Yasuda Fire And Marine Insurance of Europe, before changing its name in 2001.

Tags Berkshire Hathaway Specialty Insurance

Acquisitions Berkshire Hathaway Automotive Commentary

Commentary: Is a Boston Dealership Group a Likely Acquisition for Berkshire Hathaway Automotive?

Post author By David Mazor
Post date October 19, 2015

(BRK.A), (BRK.B)

When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its $4.1 billion acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate.

The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and instantly made the newly christened Berkshire Hathaway Automotive Group the fourth largest dealership group in the U.S.

The Van Tuyl acquisition was just the beginning, Warren Buffett noted in his 2015 Berkshire Hathaway Chairman’s Letter, stating, “…if we can buy dealerships at sensible prices – we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”

A Plum Waiting to be Picked

Now, a plum dealer group looks ready to sell and Berkshire Hathaway Automotive could be the perfect buyer.

Herb Chambers Companies, a privately-held, Boston-based dealership group with 55 total dealerships, looks to be the perfect fit for Berkshire Hathaway Automotive, and its owner looks ready to sell.

Herb Chambers, a former copier salesman who has spent the past thirty years building a first class dealership group that is the 12th largest privately held auto group in the nation, has already stated that he would sell if the price is right.

He also credits Warren Buffett’s Van Tuyl Group acquisition for boosting his personal net worth to some $1.5 billion, as valuations jumped throughout the whole sector, and private equity money, including financier George Soros, began looking to get in.

In the past, Chambers has turned down offers from AutoNation Inc. and Penske Automotive Group, but with valuations high for auto groups, there could no better time to cash out.

Berkshire Hathaway never likes to get into bidding wars, so what would make Chamber choose Berkshire?

With Berkshire Hathaway Automotive he could still remain in charge of his baby, just like Larry Van Tuyl, who became chairman of Berkshire Hathaway Automotive.

Unlike most private equity investors that quickly replace the existing leadership, Berkshire Hathaway looks as much as possible to keep talented managers at the helm. It was that arrangement that attracted Larry Van Tuyl to Berkshire. As Warren Buffet explained:

“Larry Van Tuyl, the company’s owner, and I met some years ago. He then decided that if he were ever to sell his company, its home should be Berkshire.”

Chambers Knows When to Sell

Herb Chambers is certainly not afraid to sell when the time is right. Three decades ago he founded A-Copy America, and after merging it with Ikon Office Solutions, he cashed out with a sale to Ricoh. It was a shrewd move, and Chambers has proved to be a shrewd guy who currently sells more cars than anyone else in New England.

Could the perfect exit strategy for Herb Chambers this time involve Berkshire?

Could be. After all, Chambers does have a photo of him and Buffett on the wall of his office.

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Tags Berkshire Hathaway Automotive

Acquisitions Insurance

Berkshire Completes PLICO Acquisition

Post author By David Mazor
Post date September 15, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s MedPro Group (MedPro) has announced the completion of its acquisition of Oklahoma City-based PLICO, which serves approximately 2,200 healthcare providers in Oklahoma, and is the largest healthcare liability insurer in Oklahoma.

The company notes that the transaction process – from signing to closing – took less than 60 days, and that the PLICO and MedPro teams have already begun working cohesively to serve Oklahoma healthcare providers.

PLICO’s principal operations will remain in Oklahoma City. Carl Hook, M.D., will remain as CEO while also serving as Chair of PLICO’s Advisory Board, and long-time PLICO executive Sherry Hayworth will serve as President.

Founded in 1979, PLICO is the largest healthcare liability insurer in Oklahoma, and has annualized gross written premiums of about $30 million, and had a statutory surplus of over $60 million at year-end of 2014.

The “bolt-on” acquisition is only the second acquisition for MedPro since Berkshire Hathaway acquired it a decade ago.

PLICO is not currently rated by leading insurance rater, A.M. Best, but is expected to apply for financial strength ratings and be positioned to offer additional products and services.

Prior to the PLICO acquisition, Berkshire’s MedPro had $874 million in annual premiums and more than 140,000 customers.

Tags Insurance

Acquisitions Duracell

Duracell Makes Push to Expand Asia Sales

Post author By David Mazor
Post date September 10, 2015

(BRK.A), (BRK.B)

Battery-maker Duracell is making a push to expand its market penetration across Asia.

Duracell is the world-wide leader in alkaline batteries and will become a wholly-owned subsidiary of Berkshire Hathaway in early 2016.

Duracell has hired DKSH to help with the effort. Based in Zurich, Switzerland, the company is a Market Expansion Services Group that focuses on Asia.

DKSH’s goal is to drive growth of Duracell across retail and online channels in mainland China and Taiwan, and in Southeast Asia including Thailand and Singapore. DKSH’s services include field marketing, sales, distribution, logistics, and credit and collection services.

For Duracell, DKSH, through its joint venture DKSH Smollan Field Marketing, will provide a range of shopper engagement and activation services in Singapore, Taiwan and Thailand.

DKSH Smollan Field Marketing (DSFM) is jointly owned by DKSH and the Smollan Group of South Africa – a leading provider of Point of Purchase Services.

DKSH’s services include sourcing, research and analysis, marketing, sales, distribution and logistics to after-sales services. The company operates in 35 countries and has 720 locations in in Asia Pacific, and 30 in Europe and the Americas.

For more info on Duracell read this Special Report.

Tags Duracell

Acquisitions Lubrizol

Lubrizol Acquires Particle Sciences

Post author By David Mazor
Post date September 9, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s wholly-owned Lubrizol Corporation has acquired Particle Sciences, a contract drug development and manufacturing organization with a comprehensive suite of services for the formulation, analysis and production of complex drug delivery solutions.

Headquartered in Bethlehem, Pennsylvania, Particle Sciences specializes in drug eluting device product development as well as sterile and particulate drug products.

This acquisition further expands Lubrizol LifeSciences’ pharmaceutical development capabilities, providing full service drug delivery solutions to the market across a variety of dosage forms.

Founded in 1991, the company is headed Mark Mitchnick, Dr. Mitchnick holds over 20 patents related to drug delivery, diagnostics and physiologic monitoring.

“With the addition of Particle Sciences and the recent acquisition of Vesta, we are now able to offer customers a complete solution that is one of the most comprehensive in the industry,” stated Deb Langer, vice president and general manager, Lubrizol LifeSciences. The combination of Lubrizol’s polymer expertise, Vesta’s quality medical manufacturing and Particle Sciences’ drug formulation development allows LifeSciences to provide end-to-end solutions in the drug delivery market.

Among its recent developments, in April, the company received a patent for its Surface Arrayed Therapeutics™ Drug Delivery Platform, a technology that has utility in applications ranging from oncology to vaccines.

“Particle Sciences and Lubrizol LifeSciences have worked together for several years providing various elements of an end-to-end solution from polymer supply through formulation and commercial manufacturing,” said Mark Mitchnick, chief executive officer, Particle Sciences. “With this transaction, Lubrizol LifeSciences acquires Particle Sciences’ extensive formulation, analytic and production assets for drug eluting devices, particulate, sterile and other complex drug products established over the last 10 years. We expect that coordinating all of this under one company will greatly benefit our customers.”

Particle Sciences will now be part of Lubrizol Advanced Materials but will retain its company name.

Financial terms of the transaction were not disclosed.

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 7,500 employees worldwide. It sells its specialty chemical products in over 100 countries.

Berkshire Hathaway acquired Lubrizol in 2011 for $9 billion in cash.

Tags Lubrizol

Acquisitions Kraft Heinz Warren Buffett

No More Elephants For Buffett’s Famed “Elephant Gun,” For Now

Post author By David Mazor
Post date August 25, 2015

(BRK.A), (BRK.B)

Warren Buffett likes to refer to his hunting for big companies, such as his acquisition of BNSF Railway, and the recently announced Precision Castparts Corp., as hunting for elephants with his “elephant gun.”

While each year Berkshire does on average $3 billion of bolt-on acquisitions for its various companies, it takes something really elephant-sized to move the needle on a conglomerate with a market value of a third of a trillion dollars.

Those kinds of deals, be they BNSF, Kraft Heinz, or Precision Castparts, also mean that the Buffett’s elephant gun will be quiet while he refills the cash coffers. Berkshire is spending down its $66 billion in cash by $20 billion, and Buffet likes to maintain at least $20 billion in cash as a reserve in the case of economic downturns.

Buffett Reloads the Cash

“This takes us out of the market for an elephant but we will probably be buying a few small things in the next 6 months,” Buffett recently remarked, explaining the deal for Precision Castparts. “We are in negotiations on a couple but in terms of a deal of similar size it pretty much takes us out. What we will probably do on this one, we will probably borrow about $10 billion and use about $23 billion of our own cash on that order. We’ll be left with over $40 billion probably in cash when we get all through. But I like to have a lot of cash at all times, so this means we have to reload over the next 12 months or so, but it doesn’t preclude doing smaller deals, but we will be doing a few probably.”

That’s The Way The Cookie Crumbles

So, despite the recent excitement around activist investor Bill Ackman of Pershing Square having taken a $5.5 billion stake in snack food company Mondelez, perhaps with the goal of seeing it sold to a buyer like Berkshire, don’t look for it to merge into either Berkshire or Kraft Heinz any time soon.

Tags Kraft Heinz, Warren Buffett

Acquisitions Precision Castparts Warren Buffett

Is Berkshire Getting Precision Castparts Too Cheap?

Post author By David Mazor
Post date August 20, 2015

(BRK.A), (BRK.B)

Did Berkshire Hathaway pay too much when they agreed to pay $37.2 billion for aerospace parts manufacturer Precision Castparts?

That seems to be the Wall Street consensus based on the way the stock price has sagged a bit. Analysts slammed the deal, proclaiming that unlike the 2009 takeover of BNSF Railway this is a case of buying at the top of the market, not the bottom.

Buffett Agrees

While Warren Buffett doesn’t believe he is paying too much, after all, he’s buying a company Berkshire plans to still own in a hundred years, he has acknowledged, “This is a very high multiple for us to pay.”

Not So Fast

While almost everyone thinks the price is too high, Georg H. Krijgh of the G.H. Krijgh Guardian Fund, a private partnership based in the Netherlands, thinks it is way too low, and that Buffett has pulled a fast one again.

In a letter to Precision Castparts’ Board of Directors he states:

“Precision Castparts is the largest investment of our fund. We believe that the true value of the company is far in excess of the USD 235 per share offer by Berkshire Hathaway. In our view:
1. An independent Precision Castparts is worth at least USD 40 billion.
2. Berkshire Hathaway is not paying an appropriate premium.
3. Accepting the USD 235 per share offer is not in line with the fiduciary duty of the Board of Directors.
4. We will vote against the proposed sale.

We believe that the PCC Board of Directors is leaving significant value on the table.

We expect earnings of USD 2 billion

First, Mr. Buffett is telling the media that the multiple is high. This might be true based on 2015 earnings but it is incorrect when using future expected earnings and free cash flow. Current earnings are temporarily under pressure due to lower volumes in energy markets. PCC’s aerospace business is much less cyclical than widely believed and the ramp-up of several programs such as the Boeing 737 MAX, A320neo and the H-class turbines is likely to significantly increase earnings per share in the next few years even when energy markets remain weak. Mr. Donegan confirmed this in several recent earnings calls. We believe that free cash flow will grow to USD 2 billion annually.

Multiple of at least 20 times

Second, PCC deserves a high multiple because it has a tremendously strong market position, which is clearly visible by the continuously high return on equity. It is the low-cost and often sole-source provider of mission critical components in a secular growth market, a leader in metallurgical technology, owner of intellectual property and strategic assets such as TIMET and has a strong balance sheet. Especially in these times of low interest rates, PCC deserves a multiple above 20 times earnings. PCC is worth at least USD 40 billion.”

More From Krigh

“Berkshire Hathaway is offering a normal multiple on depressed earnings. Mr. Buffett, whom we greatly respect, and his team have a reputation of finding companies that are not aware of their true fair value. A case in point is Berkshire Hathaway’s takeover of Burlington Northern in 2009. He bought the railroad just before the economy and earnings rebounded. In 2009, shareholders may have been distracted by the credit crisis. Currently, there is no reason to sell for a low price in a hurry. The quoted 21% premium is based on a short-term dip in the share price. For many days during the past year the share price was trading above USD 220, a 6% discount to the offer price.”

Is There Really A Premium?

Krigh cites Precision Castparts’ own stock repurchases to question whether Berkshire is even paying a premium for the stock at all in light of the stock’s 52-week high of $249.12 being above Berkshire’s offer of $235 per share.

“During the past two years, the Board of Directors approved and executed share repurchases at prices around Berkshire Hathaway’s offer price. A significant part of the buybacks seems to have occurred at an average price above USD 230. It is puzzling why you are willing to buy Precision Castparts shares at this price and at the same time sell full control of the business at the same price. In addition, in 2014 and 2015, Berkshire Hathaway bought additional shares of PCC for a price between USD 200 and USD 240. You are aware that they are intelligent investors and only buy when the intrinsic value is significantly higher than the price. This confirms the fact that the USD 235 per share offer is too low.”

So, is Berkshire paying too much or too little? Only time will tell, but when you plan to own something a hundred years or two, it will probably look like quite a bargain at some point.

For Berkshire shareholders alive today, here’s hoping that the bargain is now.

Tags Precision Castparts, Warren Buffett

Acquisitions Kraft Heinz

Could Kraft Heinz Be Ready To Gobble Up Mondelēz?

Post author By David Mazor
Post date August 14, 2015

(BRK.A), (BRK.B)

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.

Tags Kraft Heinz, Warren Buffett

Acquisitions Precision Castparts Todd Combs and Ted Weschler Warren Buffett

A Big Win for Todd Combs

Post author By David Mazor
Post date August 12, 2015

(BRK.A), (BRK.B)

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.

Tags Precision Castparts, Ted Weschler, Todd Combs