Category: Todd Combs and Ted Weschler

Categories
Lubrizol Minority Stock Positions Stock Portfolio Todd Combs and Ted Weschler Warren Buffett

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

(BRK.A), (BRK.B)

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.

Categories
Acquisitions Precision Castparts Todd Combs and Ted Weschler Warren Buffett

A Big Win for Todd Combs

(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.

© 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.

Categories
Todd Combs and Ted Weschler

Berkshire’s AT&T Stake Echoes P&G Deal

(BRK.A), (BRK.B)

With AT&T’s acquisition of DirecTV now completed, Berkshire finds itself a major shareholder in AT&T at a price far more favorable than if it had originally gone out and bought AT&T stock.

At the time that AT&T announced the $48.5 billion acquisition of DirecTV, Berkshire  owned 34.5 million shares of DirecTV. Those shares were purchased at roughly half the tender price of $95 per share that was offered by AT&T.

At the $95 share price, Berkshire’s holdings were worth at least $3.27 billion, provided that it did not accumulate any additional shares after March 31, 2014.

After the merger, each DirecTV share has converted to 1.892 shares of AT&T common stock and $28.50 in cash. Berkshire has ended up with 59.4 million shares of AT&T with a value of roughly $2 billion, and also received roughly $900 million in cash.

Todd Combs and Ted Weschler Pick a Winner

Berkshire’s DirecTV stake was purchased by Todd Combs and Ted Weschler, as a part of portfolios they manage on behalf of the company.

Combs and Weschler each manage $7 billion portfolios, and have seen the amount of money under their supervision increased significantly in the past two years as Warren Buffett has grown more confident in their approaches.

The Future of Berkshire’s AT&T Stake

Berkshire has not announced any plans for its AT&T stake, but it wouldn’t be surprising if it held on to it long-term. Berkshire has a history of sitting on its stock positions and letting the dividends pour in. Currently, AT&T pays $1.88 annually for a return of 5.5% based on a share price around $34. However, with Berkshire’s cost basis less than half of that share price its yield is effectively 11%.

The deal is reminiscent of Berkshire’s $600 million investment in Gillette, which through a merger eventually became a $4.7 billion stake in Procter & Gamble.

Berkshire recently liquidated its stake in P&G by swapping P&G stock for the company’s  Duracell battery division, which was also recapitalized with $1.7 billion in cash.

The move helped Berkshire avoid the large capital gains tax that would have been due if it had simply sold its P&G shares, and brought the world-leader in batteries under its corporate umbrella.

Who knows what the future holds for its AT&T stake?

© 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.

 

Categories
Todd Combs and Ted Weschler

Berkshire Hathaway Benefits From Cable TV Frenzy

(BRK.A), (BRK.B)

Charter Communications’ agreement to acquire cable operator Time Warner Cable has the cash register ringing at Berkshire Hathaway as well.

Shares of cable operator Liberty Global PLC, with annual revenues of $18.2 billion, has soared as the quickly consolidating cable industry has drawn interest from large Wall Street hedge funds.

Berkshire’s not sitting on the sidelines, as its stake in Liberty Global stood at 10,342,793 shares as of March 31, 2015, making Berkshire the 5th largest institutional holder of the company.

As the battle for Time Warner Cable has heated up over the last year, Liberty Global stock has risen a dramatic 29% over the past 12 months, and 16.2% year-to-date.

Berkshire first disclosed a stake in the international cable TV operator in December 2014, when it announced it owned 2.95 million shares of the company. As of March 31, 2015, Berkshire has trimmed its position by some 473,531 shares.

An International Cable TV Power House Eying Acquisitions

Helmed by cable TV mogul John C. Malone, Liberty Global is the largest international cable company and serves 14 countries, including 12 in Europe, and it’s clearly looking for even more customers and reach.

Malone, who is also the Chairman of Liberty Media Corporation and Liberty Interactive Corporation, and a member of the Board of Directors of Charter Communications, is known as one of the most aggressive dealmakers in a field known for deal making. Malone holds a 26% in Charter Communications through Liberty Broadband.

Is Vodafone Next?

Recently, Malone has expressed interest in British telecommunications company Vodafone Group, suggesting it would be a “good fit” with Liberty Global. As cable operators seek to expand their spheres of operation in the face of growing competition from non-cable Internet services, such as Netflix and Hulu, Malone just might be right that Vodafone’s 400 million customers across the globe are just what Liberty Global needs, and Berkshire could be along for a nice ride.

© 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.

Categories
Buffett Successors Todd Combs and Ted Weschler Warren Buffett

Are Ajit Jain and Greg Abel the Successors to Warren Buffett and Charlie Munger?

(BRK.A), (BRK.B)

Despite Warren Buffett being a spry age 84, and Charlie Munger a youthful 91, the question of the successor or successors that will lead Berkshire Hathaway continues to be on analysts’ and commentators’ minds.

“Both the board and I believe we now have the right person to succeed me as CEO — a successor ready to assume the job the day after I die or step down,” Buffett has said.

Now, in his letter published in the 2014 Annual Report, Charlie Munger seems to hint that Ajit Jain or Greg Abel could be in line to provide the leadership that will carry Berkshire forward.

“For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.” “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system.”

While neither Buffett nor Munger has officially revealed the next leader or leaders of Berkshire Hathaway, both Jain and Abel would seem to fit the bill.

First, they would be promoted from inside the company, and thus are steeped in Berkshire’s unique corporate culture.

Secondly, they are both young enough to have long reigns at a company that certainly has no interest in a mandatory retirement age, and each of them would bring essential skill sets to the job.

Both have played important leadership roles heading two of Berkshire’s largest units.

Ajit Jain, as the man who has built Berkshire’s insurance and reinsurance empire, is better equipped than almost anyone in the world to take on the important task of making sure Berkshire’s insurance companies don’t try to grow by taking on undue risk.

Greg Abel, as the head of Berkshire Hathaway Energy, certainly knows about capital allocation. Under his leadership, BHE has grown into one of the world’s largest energy providers and a leader in renewable energy generation. He also sits on the Board of Heinz, and BHE includes Berkshire Hathaway Home Services, Berkshire’s rapidly expanding real estate sales unit. Both of these companies give him additional insight into consumer markets.

As for their ages, Jain is age 63, and Abel is only 52, so they hopefully would have many years to put their stamps on Berkshire.

So which one is it?

Why not both of them?

Well, while Buffett spoke in the singular, he has already stated that his replacement would probably see his various roles filled by several people.

The job of managing Berkshire’s $125 billion and growing stock portfolio will almost certainly fall to Ted Weschler and Todd Combs, who Buffett has been grooming by giving each a multi-billion dollar stock portfolio to manage.

Together, Jain and Abel would also be sounding boards and counter balances for each other in much the same way that Buffett has used Munger.

While Warren Buffett rightly gets the lion’s share of credit for Berkshire’s phenomenal growth, Charlie Munger’s sage advice has often been overlooked by the press.

It certainly hasn’t been overlooked by Buffett.

While the latest buzz comes from Munger, Buffett has repeatedly praised both Jain and Abel.

On Jain, Buffett said “It is impossible to overstate how valuable Ajit [Jain] is to Berkshire. Don’t worry about my health; worry about his.”

On Abel, Buffett has highlighted the impact that he and Mathew Rose (CEO of BNSF) have had on Berkshire, stating “I am also both proud and grateful for what they have accomplished for Berkshire shareholders.”

So, if Ajit Jain and Greg Abel are indeed the future leaders of Berkshire, shareholders can look forward to continued smart and capable leadership.

And we shouldn’t forget BNSF’s executive chairman Mathew Rose, who is only in his mid-fifties. He is certainly a prime contender as well.

© 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.

Categories
Buffett Successors Todd Combs and Ted Weschler

Buffett Successors: Are Ted Weschler and Todd Combs in the Running?

(BRK.A), (BRK.B)

Handicapping the successors to Warren Buffett and Charlie Munger has become a major pastime for Berkshire Hathaway followers, so here is a pro and con analysis for two possible candidates, who because of their similar work as Berkshire investment portfolio managers, will be treated as one.

Candidates: Ted Weschler and Todd Combs

Current positions: Manage more than $14 billion in investment portfolios for Berkshire Hathaway.

Pro: With a total portfolio of over $100 billion in stock of leading companies, including Coca Cola, IBM, Wells Fargo, and American Express, Berkshire Hathaway in part resembles a mutual fund. Management of this portfolio has traditionally been Buffett’s job, although he has delegated over 10% of the portfolio to Weschler and Combs, and has steadily increased the amount they manage each year. Weschler and Combs each manage a portfolio of their own choosing. The case for either or both of them is that asset allocation is the primary role that both Buffett and Munger have chosen for themselves, and portfolio management is just that.

Both Weschler and Combs are former hedge fund managers. Ted Weschler was the founder of a hedge fund, Peninsula Capital, and Todd Combs was the CEO and Director of Castle Point Capital.

Berkshire’s company acquisition strategy, which last year included acquiring global food company Heinz, and this year will gain them the Van Tuyl Auto Group, and a portion of Burger King, puts Berkshire in the same class as a hedge fund, only with a long-term ownership time frame.

Alice Schroeder, Bloomberg View columnist and author of “The Snowball: Warren Buffett and the Business of Life,” noted about Ted Weschler that “Warren keeps describing him as an investment manager, but the reality is his skills are more comparable to those of Warren himself. He has a background in broad capital management, including private equity, mergers and acquisitions, owning businesses and being directly involved in their management.”

As Warren Buffett’s handpicked protégés, Buffett has praised their success, noting that “They have made Berkshire billions already that we wouldn’t have otherwise made,” Buffett said on CNBC. “They both have a fundamental combination of soundness and brilliance.”

Con: Lack of management experience leading a company the size of Berkshire Hathaway. There are other Berkshire managers, including Geico’s Tony Nicely, BNSF Railway’s Matt Rose, and Berkshire Hathaway Energy’s Greg Abel, that have more experience helming large corporations.

Biggest Negative: Buffett has already ruled them out, explaining on CNBC that “They will not be the Chief Executive Officer, but they will be there to help the Chief Executive Officer in that arena. Just like people that run given business are there to help in their areas.”

Analysis: This one is an easy one. When Buffett says you are out of the running, you’re out.

© 2014 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

Categories
Todd Combs and Ted Weschler

AT&T Acquisition of DirecTV Means Windfall for Berkshire Hathaway

(BRK.A), (BRK.B)

Whether AT&T’s newly announced $48.5 billion acquisition of DirecTV is ultimately good for both parties is uncertain, but one thing that is certain, is that it means a huge windfall for Berkshire Hathaway.

Berkshire reported owning 34.5 million shares of DirecTV as of March 31, 2014, and those shares were purchased at roughly half the tender price of $95 per share being offered by AT&T.

A Windfall for Berkshire

At the $95 share price, Berkshire’s holdings will be worth at least $3.27 billion, provided that it did not accumulate any additional shares after March 31.

A Winner for Todd Combs and Ted Weschler

Berkshire’s DirecTV stake was purchased by Todd Combs and Ted Weschler, as a part of portfolios they manage on behalf of the company.

Combs and Weschler each manage $7 billion portfolios, and have seen the amount of money under their supervision increased significantly in the past two years as Warren Buffett has grown more confident in their approaches.

Both stock pickers beat the S&P 500 in 2013. 2014 looks to be a very good year as well.

© 2014 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.