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GEICO Insurance

Commentary: GEICO Right to Bet on Maintaining Policyholder Loyalty

(BRK.A), (BRK.B)

Berkshire Hathaway’s auto insurer GEICO is pausing cancellation of coverage due to non-payment and policy expiration, effectively immediately. This pause will remain in effect through April 30, 2020.

In addition, GEICO is prepared to offer maximum flexibility, including special payment plans, to those who need it once normal billing operations are scheduled to resume.

“This ongoing situation impacts everyone, and we want our policyholders to have some peace of mind knowing we’ll be there when they need us most,” said GEICO President and CEO Todd Combs.

In taking this step, GEICO is betting that maintaining policyholder loyalty is more important than trying to squeeze cash out of customers that are out of the blue in a severe cash crunch.

While they may have some policies in arrears, on the positive side for GEICO is that self-quarantining due to the Coronavirus will lead to a dramatic reduction in new claims filed due to reduced mileage.

GEICO, like other leading auto insurers, such as Progressive, Liberty Mutual, and State Farm, normally runs multiple media campaigns. The reason for this is that in recent years the battle for policyholders is primarily a branding battle, not one of service or policy features.

Capturing the wallet of the consumer through the GEICO gecko, wood chucking wildlife, and office wandering camels, is a far more effective than listing the dry insurance features that policyholders are actually purchasing.

GEICO’s doing the right thing, both for consumers and for its bottom line. After all, losing customers at a time when they are down may add to customer acquisition costs down the road when the economy revives.

If GEICO can maintain brand loyalty, it will have done more to cement itself in the heart of the consumer than all the geckos in the world ever could.

© 2020 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

BYD Becomes Major Surgical Mask Producer

(BRK.A), (BRK.B)

BYD has jumped into the medical supplies business and almost overnight has already become one of the largest manufacturers of surgical masks.

BYD is growing its efforts to help alleviate severe shortages that have affected hospitals in the face of the COVID-19 global outbreak.

BYD’s manufacturing plant in Shenzen, China is mass-producing sanitary face masks, and is now running at full capacity.

The plant can produce 5 million masks and 300,000 bottles of disinfectant per day.

The supplies will “help alleviate severe shortages that have affected hospitals and agencies across China in the face of the global COVID-19 outbreak,” the company said in a statement.

BYD Chairman and President Wang Chuanfu has appointed a special task force consisting of leaders from different business divisions and more than 3,000 engineers involved in research and development, design, processing and other roles.

“A production line for high-quality face masks requires about 1,300 parts for various gears, chains, and rollers, 90% of which are BYD’s self-made parts,” Sherry Li, director general of BYD’s President Office, said in a statement.

BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares. It’s an investment that has paid off handsomely. Berkshire’s original investment of $230 million has grown in value almost ten-fold, and is now worth roughly $1.96 billion.

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

© 2020 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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Mouser Electronics

Mouser Electronics Named Global High Service Distributor of the Year by TE Connectivity

(BRK.A), (BRK.B)

Berkshire Hathaway’s Mouser Electronics, Inc., the authorized global distributor with the newest semiconductors and electronic components, has received the Global High Service Distributor of the Year Award for the sixth time from TE Connectivity (TE), a world leader in connectivity and sensors.

The top distribution award recognizes Mouser’s 2019 performance based on sales growth, market share growth, customer growth and business plan performance.

“Mouser delivers exceptional service to our mutual customers, and I am very pleased to recognize them with this award,” said Karen Leggio, Senior Vice President and General Manager, Channel, at TE. “Mouser’s track record of achievement with TE, including receiving the Global High Service Distributor of the Year Award six times, is a testament to our strong and successful partnership.”

“We are incredibly honored to receive this prestigious award, and thank TE for recognizing the outstanding efforts of our teams around the world,” said Glenn Smith, Mouser Electronics’ President and CEO. “TE is an industry leader and a valued business partner. We look forward to our continued mutual success.”

Last year, Mouser received TE’s APAC Customer Expansion Award, Japan Customer Expansion Award, and EMEA Customer Expansion Award, as well as the Americas Application Tooling Business Unit Distributor of the Year and Americas Data and Devices Business Unit Distributor of the Year Awards. Mouser received the TE Global High Service Distributor of the Year Award in 2013, 2014, 2015, 2016, 2017, and again in 2019.

© 2020 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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BH Media

Berkshire Hathaway Completes Sale of Newspaper Assets to Lee Enterprises

(BRK.A), (BRK.B)

Berkshire Hathaway’s portfolio of newspapers now officially have a new home, Lee Enterprises. The company is a local news provider and leading platform for advertising in 77 markets.

Lee Enterprises has completed its acquisition of BH Media Group’s publications and The Buffalo News.

The acquisition nearly doubled Lee’s audience size and added 30 daily newspapers, more than 49 paid weekly publications with digital sites, and 32 other print products from BHMG, as well as The Buffalo News, to Lee’s portfolio of high-quality local publications.

Lee’s portfolio is now comprised of 77 publications in 77 communities.

Additionally, after the elimination of the management agreement and adding operating expenses from the lease agreement, the transaction is expected to drive an 87% increase in revenue, a 40% increase in adjusted EBITDA, and immediately reduce Lee’s leverage to 3.5x, even before $20-25 million in anticipated annual revenue and cost synergies.

As previously announced, and in connection with the transaction, Berkshire Hathaway provided approximately $576 million in long-term financing to Lee at a 9% annual rate.

The proceeds from the financing were used to pay for the acquisition and refinance Lee’s existing debt, and also allowed Lee to terminate its revolving credit facility.

Berkshire Hathaway is now Lee’s sole lender.

Mary Junck, Chairman, said, “We are pleased to complete this compelling and transformative transaction, which enhances Lee’s position strategically, operationally and financially. This transaction reinforces our conviction in the value and power of local news, adding 31 publications with deep roots in their communities, enabling Lee to serve even more readers and advertisers. Further, this transaction allowed Lee to address our long-term debt on attractive terms while deepening our relationship with Berkshire Hathaway – now our sole lender – to enable more flexibility as we continue to invest in our business with a digital-first mindset. We join our shareholders, publishers, employees and audiences in their excitement about this transaction and the opportunities that lie ahead for Lee.”

Kevin Mowbray, President and Chief Executive Officer, said, “Lee today leads the industry in digital revenue growth and operating performance, and this transaction unlocks new opportunities to grow our top line and further accelerate our digital transformation. After over 18 months of managing the BH Media Group publications, Lee looks forward to leveraging our deep knowledge of this portfolio to drive further efficiencies across our expanded and integrated operation. This transition, which is already underway, is underpinned by shared values and an alignment around our mission to deliver high-quality local news. We are confident that we have the right strategy and operational expertise to realize the full benefits of this transaction for our readers, advertisers, shareholders and communities we serve.”

© 2020 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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Appointments

Former American Express CEO Kenneth Chenault Nominated to Berkshire Hathaway Board, Bill Gates Off

(BRK.A), (BRK.B)

Berkshire Hathaway’s board of directors will have a new member and lose an old one as of the upcoming annual meeting on May 2.

Kenneth Chenault, the former CEO and Chairman of American Express from 2001 until 2018, and the third African American CEO of a Fortune 500 company, will join Berkshire’s board.

Chenault is 68, making him a relative youngster as far as Berkshire goes.

Berkshire Hathaway owns just over 18% of American Express stock.

Meanwhile, longtime board member Bill Gates is stepping down. Gates has been on Berkshire’s board since 1991.

“I have made the decision to step down from both of the public boards on which I serve – Microsoft and Berkshire Hathaway – to dedicate more time to philanthropic priorities including global health and development, education, and my increasing engagement in tackling climate change,” Gates wrote on a LinkedIn blog last Friday.

© 2020 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 Scraps In-Person Annual Meeting

(BRK.A), (BRK.B)

They come from all over the world for what has been dubbed “Woodstock for Capitalists,” but not this year. Berkshire has issued the following statement:
Events have moved very fast since Berkshire issued its annual report on February 22.

The annual meeting will be held at 3:45 p.m. on May 2nd as scheduled. However, we will not be able to allow shareholders to physically attend the meeting, and all special events are canceled.

I very much regret this action; for many decades the annual meeting has been a high point of the year for me and my partner, Charlie Munger.

It is now clear, however, that large gatherings can pose a health threat to the participants and the greater community. We won’t ask this of our employees and we won’t expose Omaha to the possibility of becoming a “hot spot” in the current pandemic. Therefore, we will limit attendance to me, possibly Charlie, and several Berkshire employees who will deliver proxy votes.

It’s possible that one or more of the journalists that we listed on page A-2 of the 2019 annual report will be present to ask some of the questions submitted to them. We are deferring a decision on this matter, but encourage you to continue to send your questions to them.

Yahoo has confirmed that it will stream the meeting. They have provided great coverage in the past, and you can watch what takes place in Omaha from your armchair.

Charlie and I will miss you, but we will see many thousands of you next year.

Thanks for your understanding,

Warren E. Buffett

© 2020 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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Mouser Electronics

Mouser Electronics Named Global High Service Distributor of the Year

(BRK.A), (BRK.B)

Berkshire Hathaway’s Mouser Electronics, Inc., the authorized global distributor with the newest semiconductors and electronic components, has received the Global High Service Distributor of the Year Award for the sixth time from TE Connectivity (TE), a world leader in connectivity and sensors. The top distribution award recognizes Mouser’s 2019 performance based on sales growth, market share growth, customer growth and business plan performance.

“Mouser delivers exceptional service to our mutual customers, and I am very pleased to recognize them with this award,” said Karen Leggio, Senior Vice President and General Manager, Channel, at TE. “Mouser’s track record of achievement with TE, including receiving the Global High Service Distributor of the Year Award six times, is a testament to our strong and successful partnership.”

“We are incredibly honored to receive this prestigious award, and thank TE for recognizing the outstanding efforts of our teams around the world,” said Glenn Smith, Mouser Electronics’ President and CEO. “TE is an industry leader and a valued business partner. We look forward to our continued mutual success.”

Last year, Mouser received TE’s APAC Customer Expansion Award, Japan Customer Expansion Award, and EMEA Customer Expansion Award, as well as the Americas Application Tooling Business Unit Distributor of the Year and Americas Data and Devices Business Unit Distributor of the Year Awards. Mouser received the TE Global High Service Distributor of the Year Award in 2013, 2014, 2015, 2016, 2017, and again in 2019.

Mouser stocks a broad selection of TE products for industries and applications, including automotive, industrial, harsh environments, data communications, consumer devices and aerospace and defense.

As an authorized distributor, Mouser Electronics is focused on the rapid introduction of new products and technologies, giving customers an edge and helping speed time to market. Over 800 semiconductor and electronic component manufacturers count on Mouser to help them introduce their products into the global marketplace. Mouser’s customers can expect 100% certified, genuine products that are fully traceable from each manufacturer.

With its broad product line and unsurpassed customer service, Mouser strives to empower innovation among design engineers and buyers by delivering advanced technologies. Mouser stocks the world’s widest selection of the latest semiconductors and electronic components for the newest design projects. Mouser Electronics’ website is continually updated and offers advanced search methods to help customers quickly locate inventory. Mouser.com also houses data sheets, supplier-specific reference designs, application notes, technical design information, and engineering tools.

© 2020 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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Marmon Group

Berkshire Hathaway’s Railserve, Inc. Creates Strategic Alliance With USD Group

(BRK.A), (BRK.B)

Railserve, Inc., a Marmon/Berkshire Hathaway company, and USD Group have announced a strategic alliance to develop rail-centric solutions that enhance growth, efficiency and capacity for all sectors of the rail industry.

“We recognize the unique environment that railroads and shippers currently operate within,” said Dan Borgen, USDG’s CEO and President. “In an industry that is increasingly capacity constrained, our strategic alliance with Railserve is one of many ways USDG is continually pursuing growth and promoting efficiency. We believe USDG and Railserve can leverage our respective organizational capabilities to tailor unique solutions.”

The alliance between USDG and Railserve is born from a long history of collaboration and shared values. USDG and its affiliates are engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and energy-related midstream infrastructure across North America. Railserve is a leading provider of on-site rail services, including third party rail switching, in-plant logistics, locomotive service, track maintenance, locomotive sales and leasing, air brakes as well as a host of car repair inspection, cleaning and maintenance services through Union Tank Car. The alliance will allow the companies to more seamlessly provide customers with new service options, such as car inspections, car repairs and car washing.

“We believe this alliance creates a wide range of services and capabilities for rail shippers and receivers,” said Tim Benjamin, Group President – Railyard Products and Equipment. “Our longstanding relationship with USDG makes this a natural partnership for our respective companies. The current dynamic rail environment continues to evolve and both companies understand the efforts around Precision Scheduled Railroading (PSR), storage in transit (SIT), First and Last Mile, truck to rail transload, ports, and efficient growth solutions. Our collective team of experienced industry experts are uniquely qualified to assist in all these areas.”

The alliance is currently coordinating activities and railroad and energy industry partners will have immediate opportunities to benefit from these new initiatives.

© 2020 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

BYD Adds Marcela Cabrera Luna to Lead Development of New Business in Latin America

(BRK.A), (BRK.B)

BYD (Build Your Dreams) has named Marcela Cabrera Luna Business Development Analyst, Latin America. She will serve at BYD’s North American headquarters in downtown Los Angeles guiding strategy and development of new business in Mexico and Latin America working closely with each team in the region.

A transportation, utility, and clean technology expert with over 10 years’ experience creating business strategies, managing programs, and developing climate and sustainability policies, Cabrera was most recently a senior project manager at CALSTART in Innovation Mobility.

At CALSTART, Cabrera managed $20 million in start-up seed funding allocated by CARB for Clean Mobility Options. These awards are funded by the California Climate Investments (CCI), a statewide program that puts billions of cap-and-trade dollars to work reducing greenhouse gas emissions, strengthening the economy, and improving health and the environment while providing access.

Prior to that, Cabrera was at Tesla. She has also been responsible for corporate social responsibility projects with Amazon Watch, which works to protect the rainforest and indigenous peoples of South America.

She was a member of the Board of Directors for Women in Cleantech and Sustainability in the Silicon Valley, and now continues her engagement with the technology community in SoCal.

“It’s wonderful to have a woman with Marcela’s background and expertise in electric mobility, solar, and renewable energy join our growing team,” BYD President North America Stella Li said. “Professionals like Marcela make our strong team that much stronger.”

Reporting to Li, Cabrera will expand BYD’s strategic outreach in Latin America. Cabrera holds a Master’s in International Studies from the University of San Francisco and a B.S. in Anthropology and Markets from the University of California, Berkeley.

BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares. It’s an investment that has paid off handsomely, as Berkshire’s original investment of $230 million has grown in value almost ten-fold.

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

© 2020 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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BNSF

Ninth Circuit Court Sides With Tribe in Dispute With BNSF

(BRK.A), (BRK.B)

A federal judge’s ruling Wednesday in favor of the Swinomish Indian Tribal Community gave the tribe another victory against BNSF Railway in their ongoing dispute over oil trains crossing tribal land.

The United States Court of Appeals for the Ninth Circuit agreed with a lower court that a federal law didn’t prevent the Swinomish Indian Tribal Community from trying to enforce its rights under its Right-of-Way easement agreement. The decision is a major win for the tribe as it enables it to pursue injunctive relief to enforce its easement agreement.

The Swinomish Indian Tribal Community initially filed their lawsuit in March 2015, suing the railroad for violating the terms of a Right-of-Way easement granted to allow the railroad to cross the reservation.

The Easement Agreement enables BNSF to bring Bakken crude oil to the Tesoro refinery by crossing a portion of the Swinomish Indian Reservation located on Fidalgo Island in Skagit County, Washington.

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

The History of the Dispute

Train travel across the tribe’s land has a long contentious history, with the original track having been laid in the late 1800s without consent from the Swinomish or the U.S government. The tracks cross the northern edge of the reservation, and the Swinomish, as the present day political successor-in-interest to certain of the tribes and bands that signed the 1855 Treaty of Point Elliott, first sued the railroad in 1976, alleging a century of trespassing on tribal land. The resulting settlement led to the 1991 Easement Agreement that allowed only the 25-car train limit without the Tribe’s permission.

The Tribe contend in its lawsuit that “BNSF never notified the Tribe that it intended to exceed the limitation of one train of 25 cars or less, nor did it request permission from the Tribe before it began to do so.”

A Deal is a Deal

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

“We told BNSF to stop, again and again,” said Cladoosby. “We also told BNSF: convince us why we should allow these oil trains to cross the Reservation. And we listened for two years, even while the trains kept rolling. But experiences across the country have now shown us all the dangers of Bakken Crude. It’s unacceptable for BNSF to put our people and our way of life at risk without regard to the agreement we established in good faith.”

Under the terms of the Easement Agreement, the Tribe agreed not to “arbitrarily withhold permission” for BNSF’s request to increase the number of trains or cars.

Is it Arbitrary?

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

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

The Tribe noted that these enterprises are the “primary financial source for funding of the Tribe’s essential governmental functions and programs.”
The 1991 Easement Agreement granted the Right-of-Way for an initial 40-year term, along with two 20-year option periods. The current agreement will expire no later than 2071.

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

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

© 2020 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.