Category: Warren Buffett

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Commentary Minority Stock Positions Stock Portfolio Warren Buffett

Commentary: Has the Time Finally Come for Berkshire to Cash Out of Axalta?

(BRK.A), (BRK.B)

Has the time finally come for Berkshire Hathaway to cash out of its minority position in Axalta?

Back in 2015, Berkshire Hathaway acquired roughly 10% minority stake in Axalta Coating Systems from The Carlyle Group for $560 million, or $28.00 per share. Axalta is a leading global coatings provider for vehicles and industrial applications.

Since that time it’s watched its investment flounder, as the Philadelphia-based Axalta fought off being acquired by PPG, and spurned another potential merger with Dutch coatings company Akzo Nobel.

Nippon Paint was another company that was interested in Axalta, only to have the company reject a $9.1 billion all-cash bid that it made near the end of 2017.

2017 was also a year of internal turmoil for the company. Axalta parted ways with its newly hired CEO, Terrence Hahn, after only five weeks on the job. The dismissal came after an internal investigation turned up conduct that Axalta “believes was inconsistent with company policies.”

Chief financial officer Robert Bryant took over as CEO and remains in that position today.

Apparently, Axalta was a company unwilling to be taken over by anyone.

Now, Axalta finally seems ready to enhance shareholder value, and a takeover has become more likely.

“Axalta’s Board is committed to maximizing value for all shareholders and has initiated a comprehensive review of strategic alternatives, including a potential sale of the Company, changes in capital allocation, and ongoing execution of our strategic plan,” according to Axalta director Mark Garrett.

With a sale of the company finally on its board’s agenda, could this be the time for Buffett to finally get something for his investment?

Nippon Paint, PPG, and Akzo Nobel are all among the potential players, and the market has quickly recognized that this time may finally be different for Axalta.

Axalta (AXTA) closed on Friday at $29.99, making Berkshire’s stake worth $727,677,360. And it’s now trading above its 52-week high of $30.94 in Friday’s after-hours trading.

Hopefully there’s more good news to come.

Finally.

© 2019 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.

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

Todd Combs and Ted Weschler’s Portfolios Continue to Grow

(BRK.A), (BRK.B)

Todd Combs and Ted Weschler, the former hedge fund managers that Warren Buffett hired to manage a portion of Berkshire Hathaway’s stock portfolios, have continued to see their portfolios grow.

Combs was hired in 2010, and Weschler was hired in 2011, and each was initially given a billion dollar portfolio to separately manage. Over the past five years, Buffett has increased their portfolios as he has grown confident in their abilities. The portfolios have now reached $13 billion each, according to Buffett’s recent comment on CNBC.

Warren Buffett says Berkshire stock managers Weschler, Combs have trailed the S&P 500 from CNBC.

Berkshire’s total stock holdings total a whopping $183 billion, according to its most recent 13-F filing.

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,” he said on CNBC in 2014. “They both have a fundamental combination of soundness and brilliance.”

While Buffett notes that this past year “Overall, they are a tiny bit behind the S&P, each, by almost the same margin,” Buffett acknowledged to Becky Quick on CNBC’s “Squawk Box” that they were still doing better than he was.

More than Just Portfolio Managers

In addition to portfolio management, Combs sits on the Boards of companies that Berkshire holds sizable stakes in. Combs is on the Board of JPMorgan Chase & Co., and Paytm, and he also is playing a key role in the Amazon, Berkshire Hathaway and J.P. Morgan Chase healthcare joint venture, having been charged with finding the project’s CEO.

It was also Combs’s belief in aerospace manufacturer Precision Castparts that directly led to Buffett’s $32 billion acquisition of the company.

“You have to give Todd Combs credit for the deal,” Buffett said, 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.

Another winner was Combs and Weschler’s positions in DirecTV in 2014. The satellite broadcaster’s acquisition by AT&T brought an over $3 billion windfall for Berkshire, as its 4.5 million shares were purchased at roughly half the tender price of $95 per share offered by AT&T.

When the day come that the entire Berkshire portfolio is in Todd Combs and Ted Weschler’s hands, Berkshire’s shareholders will be able to sleep well at night knowing it is well-managed.

© 2019 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.

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Commentary Warren Buffett

Commentary: Here’s One Big Thing to Like in Buffett’s Annual Letter

(BRK.A), (BRK.B)

Warren Buffett may be frustrated that he can’t find any “elephants” to acquire, but he did give hope to Berkshire investors that there is one elephant-sized company that he would love to own more of, Berkshire Hathaway.

In his just released Annual Letter to Shareholders, Buffett stated “it is likely that – over time – Berkshire will be a significant repurchaser of its shares…”

While Buffett made no mention of paying a dividend, which is something he has been negative on in the past, he is clearly willing to put more of Berkshire’s $112 billion in cash into stock buybacks if the price is right.

It’s a process that’s already begun.

In the 3rd quarter of 2018, Berkshire bought back $928 million of its stock, which brought the 2018 total to more than $1.3 billion.

Now, with no big acquisition moves on the horizon, Buffett seems to be warming even more to the idea.

Remember, he stated that in future buybacks Berkshire would be a “significant repurchaser.”

Does this indicate that future buybacks could be substantially larger than what we saw last year?

It all comes down to price, and whether in Buffett’s opinion Berkshire is trading below its intrinsic value.

“If the market prices a departing partner’s interest at, say, 90¢ on the dollar, continuing shareholders reap an increase in per-share intrinsic value with every repurchase by the company,” Buffett explained.

“Assuming that we buy at a discount to Berkshire’s intrinsic value – which certainly will be our intention – repurchases will benefit both those shareholders leaving the company and those who stay,” Buffett said.

Ever cautious, Buffett is only interested in buybacks if they create value for shareholders, noting that “Blindly buying an overpriced stock is value destructive, a fact lost on many promotional or ever-optimistic CEOs.”

In his letter, Buffett also highlighted how over the years stock repurchases of some of the minority stakes Berkshire holds have given it an increasing share of those companies without spending a dime.

He pointed out that “Berkshire’s holdings of American Express have remained unchanged over the past eight years. Meanwhile, our ownership increased from 12.6% to 17.9% because of repurchases made by the company. Last year, Berkshire’s portion of the $6.9 billion earned by American Express was $1.2 billion, about 96% of the $1.3 billion we paid for our stake in the company. When earnings increase and shares outstanding decrease, owners – over time – usually do well.”

And over time, as Berkshire increases its own buybacks, hopefully shareholders will do well too.

© 2019 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.

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Warren Buffett

Berkshire Hathaway Exits Home Capital Position

(BRK.A), (BRK.B)

Berkshire Hathaway is substantially exiting its position in Canadian alternative lender Home Capital Group following the completion of the company’s Substantial Issuer Bid process.

In 2017, Berkshire invested in the company and provided financing that helped stabilize the lender, however, shareholders thwarted its plans for more extensive ownership.

“We are delighted to see Home Capital back on its feet with healthy liquidity and a solid capital position,” Warren Buffett said in a statement. “In June of 2017, when some were questioning Home’s staying power, Berkshire agreed to lend the Company $2 billion. The team at Home was a pleasure to deal with and have worked to thoughtfully strengthen Home over the last 18 months. As part of the loan commitment Berkshire also committed to provide $400 million of equity financing to Home – $153 million with the funding of the credit line and an additional $247 million contingent upon shareholder approval; shareholders did not approve the additional investment and, as a result (coupled with a full repayment of Berkshire’s credit line) Berkshire’s investment in Home is now not of a size to justify our ongoing involvement. Although we have decided to substantially exit from our investment, we will continue to cheer from the sidelines for our friends at Home.”

© 2018 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.

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Warren Buffett

Berkshire Hathaway Powers Ahead with Rising Profits, Stock Buy-Back

(BRK.A), (BRK.B)

Berkshire Hathaway’s operating profits soared in the third quarter of 2018, as quarterly operating profit was almost double from 2017.

For the 9 months of 2018 the net earnings attributable to Berkshire shareholders reached $29.413 as compared to $12.389 billion for the first 9 months of 2017.

Insurance underwriting income was one of the drivers of the growth, generating $441 million in the third quarter, versus a loss of $1.4 billion in the year-ago period.

The company also posted strong revenues in its railroad, utilities and energy, and its other businesses.

Berkshire’s enormous minority positions in a slew of leading corporations, including Apple, Southwest Airlines, General Motors, Bank of America, American Express, and Wells Fargo, grew by almost $12 billion.

Berkshire also reported that its insurance float had grown to $118 billion, an increase of $2 billion over the end of the second quarter.

The conglomerate also revealed that Warren Buffett had Berkshire repurchase over $928 Million in Berkshire Stock.

The move was the first buy-back since 2012 and confirms Buffett’s position that the shares are undervalued.

© 2018 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.

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Commentary Warren Buffett

Commentary: Buffett Not the Only Billionaire into Restaurant Brands International

(BRK.A), (BRK.B)

One of Warren Buffett’s best deals in recent years was his 2014 financing of Burger King’s acquisition of Canadian Restaurant Chain Tim Hortons.

The deal was financed by Berkshire Hathaway, and Berkshire’s role gave the conglomerate ownership and control over 4.18% of the outstanding Common Shares and 14.37% of the total number of votes attached to all outstanding voting shares of the newly created Restaurant Brands International.

The company has continued to grow, and in 2017 gobbled up Popeyes Louisiana Kitchen for $1.8 billion.

What made the deal one of Buffett’s best was Berkshire’s right to purchase 8,438,225 common shares of Restaurant Brands for a penny a share. The warrants came attached to 68,530,939 Class A 9.00% Cumulative Compounding Perpetual Preferred Shares that Berkshire acquired during the financing.

Berkshire has been sitting in the catbird seat, and with Restaurant Brands’ stock currently at $62.77 a share, Buffett is ahead a remarkable 620,770%.

It’s a reminder that Buffett is not just a great stock picker, he’s one the greatest dealmakers.

Restaurant Brands International, which trades under the symbol QSR, was trading in the $40s when the company was formed, and is still drawing interest at prices fifty percent higher than that.

Billionaire Kenneth C. Griffin has amassed 4.6 million shares of Restaurant Brands’ stock.

Griffin has been ranked as the 52nd richest person in America, and his Citadel LLC has developed a reputation for astute investments.

Griffin got his investing start in 1987, when as a 19-year-old sophomore at Harvard University, he started trading from his dorm room with a fax machine, a personal computer, and a telephone.

© 2018 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.

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Warren Buffett

Revised Berkshire Hathaway Stock Repurchase Program Makes Stock Buyback More Likely

(BRK.A), (BRK.B)

In a move that makes a Berkshire Hathaway stock buyback much more likely, the Board of Directors of Berkshire Hathaway has authorized an amendment to Berkshire’s share repurchase program.

The earlier share repurchase program provided that the price paid for repurchases would not exceed a 20% premium over the then-current book value of such shares.

Under the amendment adopted by the Board of Directors, share repurchases can be made at any time that both Warren Buffett, Berkshire’s Chairman and CEO, and Charlie Munger, a Berkshire Vice Chairman, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.

The current policy whereby share repurchases will not be made if they would reduce the value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20 billion will continue. Berkshire will not initiate any share repurchases under the amended program until it publicly releases its second quarter earnings, currently scheduled after the close of the markets on Friday, August 3, 2018.

© 2018 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.

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Warren Buffett

Buffett Converts Shares, Makes Multi-Billion Charitable Donations

(BRK.A), (BRK.B)

Warren Buffett is a generous guy. He’s made a massive fortune and now he’s giving much of it away. Buffett has converted 11,867 of his Class A shares into 17,800,500 Class B shares.

Of these Class B shares, 17,696,780 have been donated to five foundations: Bill & Melinda Gates Foundation, Susan Thompson Buffett Foundation, Sherwood Foundation, Howard G. Buffett Foundation and NoVo Foundation. These shares have a current value of $3.4 billion.

Buffett has never sold any shares of Berkshire. With the current gift, however, about 43% of his 2006 holdings have been given to the five foundations.

Their value at the time of the gifts, including the 2018 gift, totals about $31 billion.

Buffett is following his plan to have all of his Berkshire shares given to philanthropy through annual gifts that will be completed ten years after his estate is settled. In all cases, his A shares will first be converted into B shares immediately prior to the gift.

© 2018 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.

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Minority Stock Positions Stock Portfolio Warren Buffett

Berkshire Finally Cashes Out of USG

(BRK.A), (BRK.B)

After 17 years riding USG’s stock up and down, Warren Buffett is finally going to cash out with a profit.

Gebr. Knauf KG and USG Corporation have entered into a definitive agreement pursuant to which Knauf will acquire all of the outstanding shares of USG in a transaction valued at approximately $7.0 billion.

Under the terms of the agreement, USG shareholders will receive $44.00 per share, which consists of $43.50 per share in cash payable upon closing of the transaction and a $0.50 per share special dividend that would be paid following shareholder approval of the transaction.

The price represents a premium of 31% to USG’s unaffected closing price of $33.51 and a 36% premium to the $32.36 average closing price for the preceding 12-month period, both as of March 23, 2018, and a multiple of approximately 11.6x USG’s adjusted EBITDA for the 12 months ended March 31, 2018.

The transaction was unanimously approved by USG’s Board of Directors.

Berkshire Hathaway has agreed to vote its shares in favor of the transaction. As of June 11, 2018, Berkshire Hathaway and its subsidiaries owns approximately 31% of the issued and outstanding shares of USG.

While Berkshire will exit its position with a profit, Warren Buffett had previously expressed his disappointment with the fortunes of the company.

“So just put that one down as not one of our brilliant ideas,” Buffett said. “Not a disaster,” he added.

© 2018 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.

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GEICO Insurance Warren Buffett

Warren Buffett Realistic on Autonomous Cars Negative Impact on Auto Insurers

(BRK.A), (BRK.B)

With GEICO Insurance one of Berkshire Hathaway’s biggest assets and moneymakers, the impact of autonomous vehicles on insurance rates will play a big role on future profitability in the auto insurance sector.

Clearly, Warren Buffett is realistic that a world with safer cars will mean declining rates.

While noting that replacement parts of cars are far more expensive than years ago, ultimately Buffett sees a decline in rates due to fewer collisions.

“…A safer car is going to bring lower insurance rates,” Buffett said while appearing on CNBC’s Squawk Box the Monday after Berkshire’s annual meeting. “There’s one some– there’s– modest offset to that in that, in terms of collision activity– the damage is done to a car by in terms of a bumper or a side rearview mirror something. Costs far more now, it’s a much more complex product. So the damage per accident, not human damage, but physical damage to the car, that will probably go up substantially. But the number of accidents won’t– you won’t see widespread adoption unless they’re safer. And we want a safer car. So it’s net, it will be bad for the auto insurance industry over time if autonomous cars become a big part of the fleet.”

Buffett also noted that the exact timeframe that autonomous vehicles will have a big impact on rates is hard to know, as there will still be a lot of nonautonomous vehicles on the road for years to come.

“Well, it– we don’t know, I mean, what it’ll be. And you’ve got 260 million cars on the road. Let’s just say that 10% of the people took up– autonomous cars in a year. Now you’re talking about– a million eight outta the 18 million. And– there’s– a big life cycle to it and all that. But what does best for the consumer and is safer over time really will prevail– over time,” Buffett said.

Currently, GEICO insures more than 24 million vehicles in the United States.

© 2018 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.