Mazor'sEdge – Page 223 – News and analysis on Berkshire Hathaway

Berkshire Continues to be Bullish on Wind Power

Post author By David Mazor
Post date October 13, 2014

(BRK.A), (BRK.B)

Berkshire Hathaway’s MidAmerican Energy Company, a subsidiary of Berkshire Hathaway Energy, will develop a new wind farm site in Adams County, Iowa, and expand a second site in O’Brien County, Iowa, in 2015.

The $280 million project will include the installation of up to 67 wind turbines and will add up to 162 megawatts of additional wind generation capacity in Iowa.

The new project comes just 16 months after MidAmerican Energy launched a $1.9 billion investment to add up to 1,050 megawatts of wind generation in Iowa by year-end 2015.

A Leader in Wind-Generated Power

MidAmerican Energy first began installing wind turbines in 2004, and is first among U.S. rate-regulated utility in wind-powered generation capacity.

The aggressive strategy has MidAmerican Energy on track to reach 3,500 megawatts of wind generation capability in Iowa by the end of 2015.

William J. Fehrman, president and CEO of MidAmerican Energy, stated that “With this proposed expansion, beginning in 2016, MidAmerican Energy’s wind resources are expected to produce an amount of energy equivalent to approximately 50 percent of the retail energy customers are expected to need.”

MidAmerican Energy’s goal is to provide renewable energy for the equivalent of approximately 1.05 million average Iowa households.

Wind’s Growing Role in Meeting Energy Needs

Wind energy is playing an increasing role in the US’s energy needs with a total installed wind capacity in the U.S. of 61,327 megawatts through first quarter of 2014. Total wind generated energy is enough to power 15.5 million homes.

On the commercial side, wind energy has found demand from companies such as Google, which in April 2014, signed an agreement with MidAmerican Energy to supply Google’s data center in Council Bluffs, Iowa, with up to 407 megawatts of wind-sourced energy.

As the cost of wind energy continues to drop, consideration also needs to be given to “hidden costs” inherent in other forms of energy production. The National Research Council identified these costs and noted that “pollutants from the burning of fossil fuels have effects on human health, grain crops, timber yields, building materials, recreation, and outdoor vistas.”

These hidden cost costs are often overlooked when calculating the cost of power generation, and make wind power all the more attractive.

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 Berkshire Hathaway Energy

Berkshire Hathaway Automotive

Van Tuyl Group Acquisition Brings More Insurance Float

Post author By David Mazor
Post date October 10, 2014

(BRK.A), (BRK.B)

Is there anything Warren Buffett likes more than insurance float? Probably not, if you look at the more than $100 billion in insurance float generated by Berkshire Hathaway’s GEICO and its other insurance companies.

Now there’s more float on the way with Berkshire Hathaway’s recently announced $4.1 billion acquisition of auto dealership group Van Tuyl Group.

The float comes because Van Tuyl Group owns Old United Casualty Company, which provides extended warranty services and other automotive protection plans to 1.6 million customers.

In addition, Van Tuyl Group also owns Old United Life Insurance Company, which sells credit Life, credit Accident and Health policies through the Van Tuyl Group’s automobile dealerships and other outside dealerships.

New Units Will Join Berkshire’s Existing Insurance Companies

Both the Old United Casualty Company, and the Old United Life Insurance Company, will be split off from the Van Tuyl Group, and will become part of Berkshire’s wholly-owned National Indemnity Company.

The Van Tuyl Group will be rechristened Berkshire Hathaway Automotive.

The Van Tuyl Group is the number one privately-held auto dealership group and is fifth nationally among total dealership groups. The company also serves as a management consulting company that recruits on behalf of a large number of independently owned automotive dealerships.

2013 revenues were nearly $9 billion from 78 independently operated dealerships with over 100 franchises covering Arizona, California, Florida, Georgia, Illinois, Indiana, Missouri, Nebraska, New Mexico and Texas.

The Van Tuyl Group was founded in 1955 by Cecil Van Tuyl with a single Kansas Chevrolet dealership. Joined by his son Larry in 1971, the company is now headed by Larry Van Tuyl, as the current Chief Executive Officer, and Jeff Rachor.

Rachor, who previously headed Fortune 500 auto dealer group Sonic Automotive, and did a stint as the head of auto parts retailer Pep Boys, will take over as Chief Executive Officer for Berkshire Hathaway Automotive. Larry Van Tuyl will continue to manage the company as chairman.

The acquisition is expected to close in the first quarter of 2015, after clearing regulatory hurdles and gaining approvals from auto manufactures.

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Tags Berkshire Hathaway Automotive

Acquisitions Berkshire Hathaway Automotive

Berkshire Adds $1 Billion in Earning Power With Van Tuyl Group Acquisition

Post author By David Mazor
Post date October 5, 2014

(BRK.A), (BRK.B)

Berkshire Hathaway is getting in the thick of the auto retail business with the acquisition of the Van Tuyl Group. The soon to be rechristened Berkshire Hathaway Automotive will add over a billion dollars in gross profits annually to Berkshire’s bottom line.

Berkshire Hathaway agreed to acquire the auto dealership group for $4.1 billion after company CEO Larry Van Tuyl approached Berkshire and proposed the acquisition.

Billions in profit potential

Annual gross profits across the sector in 2013 averaged 15.5%. As a private company, the Van Tuyl Group does not release its annual profits, but they should be around $1.25 billion.

Adding a billion dollars annually to the Berkshire bottom line is only the beginning, as Warren Buffett has already announced that under Berkshire the company will continue to acquire dealerships as it participates in an industry-wide consolidation that has AutoNation and Penske Automotive Group as the sector leaders.

A successful management style

The Van Tuyl Group has incentivized their dealership general managers by making them minority owners of the dealerships. Berkshire is expected to continue this strategy.

One-stop shopping?

Berkshire Hathaway Automotive will likely open up new opportunities for Berkshire to have one-stop shopping for cars, financing and auto insurance.

The acquisition is expected to close in the first quarter of 2015, after clearing regulatory hurdles and gaining approvals from auto manufactures.

(Portions of this article have been updated with new information.)

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Tags Berkshire Hathaway Automotive

Berkshire Hathaway Energy

Is There an Oncor Performance in Berkshire’s Future?

Post author By David Mazor
Post date September 27, 2014

(BRK.A), (BRK.B)

Berkshire Hathaway’s Berkshire Hathaway Energy (BHE) has been aggressively expanding its assets with $15 billion in recent acquisitions. Now, the company could be one of the bidders for Energy Future Holdings’ Oncor.

Berkshire and several of the energy companies, including NextEra Energy, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor.

What is Oncor?

Oncor is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The company has the largest distribution and transmission system in Texas; with approximately 119,000 miles of lines and more than 3 million meters across the state.

Oncor is owned by a limited number of investors, including majority owner, Energy Future Holdings Corp.

What’s the price?

Oncor is estimated to be worth than $17.5 billion, which puts it in line with Warren Buffett’s goals to acquire more “elephants” in the $20 billion range.

In June, Buffett noted that Berkshire had already poured $15 billion into acquiring energy companies and he declared “There’s another $15 billion ready to go, as far as I’m concerned.”

Oncor fits the bill

Transmission lines have been high on BHE’s list of late. In April, the company made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc. (TSX:SNC).

A Growing Energy Portfolio

Berkshire Hathaway Energy currently has $70 billion in assets, including one of the largest portfolios of renewable energy in the world.

Total revenues in 2013 were $12.6 billion, with the total generation capacity owned and contracted exceeding 34,000 MW. 25% of this energy was produced from renewable or noncarbon sources.

Berkshire Hathaway Energy’s combined subsidiaries provide energy to 8.4 million customers and end-users.

With Berkshire’s over $60 billion in cash just waiting to be deployed, there could be an Oncor performance in Berkshire’s future.

Tags Berkshire Hathaway Energy

BNSF

BNSF Expansion Heads South to Mexico

Post author By David Mazor
Post date September 22, 2014

(BRK.A), (BRK.B)

While much has been written about BNSF’s booming oil transport business in the Bakken formation in North Dakota, Berkshire Hathaway’s wholly-owned railroad is also looking south of the border for growth opportunities.

Of particular focus is expanded businesses with Mexican railroad Ferromex to haul automobiles and trucks assembled in Mexico north to Chicago. The vehicles leave from Mazda and Honda assembly plants that recently opened in Silao in Guanajuato state and flow through access points in El Paso, Texas, owned by BNSF.

Ferromex, a subsidiary of Grupo Mexico, is Mexico’s largest cargo carrier, and hauls 17% of Mexico’s total cargo.

Ferromex recently expanded its FXE Silao Intermodal Facility inside the Inland Port of Guanajuato in Silao, Guanajuato.

According to BNSF, the route offers “a centrally located intermodal hub within 100 highway miles of the Bajio’s major manufacturing centers of Leon, Irapuato, Celaya, Salamanca, Queretaro and Aguascalientes.”

A Lucrative Market

The move cuts BNSF in on the lucrative business that is primarily going to Kansas City Southern and Union Pacific Corp. through Laredo, Texas.

BNSF’s access point in El Paso, Texas, has the downside of some 360 miles of extra travel when heading east to Chicago, as El Paso is roughly 600 miles west of Laredo. However, BNSF’s intermodal transport has the advantage for goods moving west to Los Angeles.

Bloomberg reports that cargo hauled both to and from Mexico by rail is booming, with $69.8 billion in goods hauled annually.

“Our partnership with Ferromex to launch this service from Chicago to Silao means that automakers and manufacturers in the U.S. and Mexico will now have direct access to the advantages of intermodal rail in the Bajio region,” said Steve Bobb, BNSF executive vice president and chief marketing officer. “This service offers Mexico’s fast growing manufacturing sector in the Bajio region a simple way to reduce trucking costs and delays.”

BNSF also notes that moving goods by rail has a distinct advantage over trucks when crossing the border because it avoids congested highway bridges.

Tags BNSF

Acquisitions BH Media

BH Media targets Jersey Shore

Post author By David Mazor
Post date September 15, 2014

(BRK.A), (BRK.B)

Move over Snooki! The Jersey Shore is the latest target for Berkshire Hathaway’s growing newspaper empire.

BH Media Group is continuing its expansion in small and medium-sized markets with the acquisition of the newspapers and publications of the Catamaran Media Group.

Catamaran publishes 12 weekly papers, with circulations ranging from 7,000 up to 15,000, serving the southern New Jersey shore area. While the individual circulations are small, the combined circulations exceed 111,000.

Also, acquired from Catamaran by BH Media Group are the SandPaper and Free-Time publications, which are weeklies covering Cape May, Ocean City and the greater area during the summer tourist seasons. The two publications have a combined circulation of 60,000.

In 2013, BH Media Group acquired a 50% interest in Catamaran when it purchased 100% of The Press of Atlantic City, a daily paper serving Atlantic City, New Jersey. The newspaper has a daily print and online readership of 273,000.

Mark Blum, The Press of Atlantic City’s publisher, will add the duties of publisher of the Catamaran publications to his duties.

Growth Strategy

BH Media Group continues to look aggressively for additional print media properties. It shuns the major markets, with Buffett having shown no interest in bidding for the Washington Post, which went to Amazon’s Jeff Bezos for $250 million in the fall of 2013. Instead, BH Media prefers to pick off the smaller markets that collectively having millions of readers and millions in revenues.

In addition to the publications acquired from Catamaran, BH Media Group owns 69 newspapers and publications located in Virginia, North Carolina, South Carolina, Alabama, Florida, Texas, Iowa, Nebraska, Oklahoma, and New Jersey.

To read a Special Report on BH Media Group’s revenues and acquisition strategies see BH Media Finds Multiples Success.

Tags BH Media

BNSF

One-Person Crews Nixed for BNSF

Post author By David Mazor
Post date September 12, 2014

It’s back to the drawing board for BNSF’s plan to reduce labor costs. The Sheet Metal, Air, Rail and Transportation Workers union voted “no,” defeating a proposed new contract that would have allowed BNSF to employ one-person crews over roughly 60-percent of its routes.

The one-person crews would have been allowed instead of the standard two-person crews, provided that a remote-site-based Master Conductor is using monitoring technology known as Positive Train Control (PTC).

The trains would have had a locomotive engineer but no other onboard crew.

Declining Crew Costs

Even without the change crew costs for railroads have been steadily dropping over the past four decades. As recently as the 1970s, various states mandated as many as six employees per train.

BNFS had proposed union concessions that would have diminished at least a portion of its expected savings through increases in the pay of conductors and ground service workers.

Tags BNSF

Nebraska Furniture Mart Special Report

Special Report: Can Berkshire’s Nebraska Furniture Mart go for $2 billion with Dallas store?

Post author By David Mazor
Post date September 10, 2014

(BRK.A), (BRK.B)

A furniture chain that produces over a billion dollars in annual revenue is a big deal, and it’s an even bigger deal when the chain has only three stores.

This is the case with Berkshire Hathaway’s Nebraska Furniture Mart (NFM), which with only 3 stores located in Omaha, Nebraska; Kansas City, Kansas; and Des Moines, Iowa, generates almost $1.04 billion in annual revenue.

That’s enough business to land NFM on the National retail federation’s “Hot 100” for 2014 despite its limited number of outlets.

The big question is whether NFM can reach $2 billion in annual sales when it opens its fourth store in the spring of 2015 at The Colony of Dallas-Fort Worth, Texas. Dallas-Fort Worth is the 4th largest metropolitan area in the United States.

Bigger is Best

NFM is known for its mega-sized stores, which include its flagship 420,000 square-feet facility in Omaha.

The new Dallas-Fort Worth store will up the ante, boasting a 1.9 million-square-foot facility featuring a 560,000-square-foot showroom that is expected to generate over $600 million in revenue annually.

A New Real Estate Play

Flying in the face of the adage that the era of the mall is dead, with retail migrating more and more to the internet, NFM is crafting a powerful regional draw that takes up lots of actual physical space rather than just cyberspace.

NFM stores have traditionally been stand-alone facilities, but with the new Dallas store NFM is developing a 400+ acres, 3.9 million square-feet mix of retail, entertainment, dining and attractions that is going by the name of Grandscape.

In addition to retail, the facility will include a hotel and amphitheater, office space, and ±300 multi-family units. NFM is betting that 18 million visitors will come to Grandscape each year, with 8 million of those visitors hopefully shopping at Nebraska Furniture Mart.

Excitement is running high even among the retailers that will be outside of the actual Grandscape footprint, and some are planning to build duplicate stores on either side of the highway to take advantage of Grandscape’s anticipated drawing power.

Average household income in the 12 county area is $57,431 with a total population in North Texas of 6.5 million. In addition, NFM believes it can draw from a huge four-state area with people traveling from as far as 300 miles away.

Revenue Projections

Is $2 billion in annual revenue realistic for four stores? Even four mega-stores? NFM is projecting that sales will grow 7% annually for the first decade with 3% growth thereafter. While 7% annual growth sounds optimistic, it is less than half of NFM’s 15.4% growth in sales in 2014.

Perhaps the bigger question is who says you have to stop at four stores?

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Tags Nebraska Furniture Mart, Special Report

Forest River Special Report

Special Report: Working for Berkshire Hathaway: “I don’t want to work for a big corporation!”

Post author By David Mazor
Post date August 25, 2014

(BRK.A), (BRK.B)

“I don’t want to work for a big corporation!” It’s popular sentiment among those with an entrepreneurial bent. What was surprising to me was those words were being spoken by one of the managers at Forest River Inc., a leading manufacturer of recreational vehicles, pontoon boats and buses that is owned by Berkshire Hathaway.

Corporate bureaucracy

Scott Adams, creator of the Dilbert cartoon strip, told USAToday, “Corporate bureaucracy ‘would be top on the list of sucking the life force out of [workers], making them feel helpless.”

Back to the manager I was speaking with. He had sold his company to Forest River a number of years back and at that time had several options. He could start another company, and face all the challenges of a new start-up; he could go to work for another corporation; or he could join Forest River as the manager of the division that had purchased his company. He chose the third option and became a general manager at Forest River, and by doing so he became one of the 335,245 employees of Berkshire Hathaway.

How big is a company that has 335,245 employees? By comparison, Exxon Mobil Corp. has only 75,000 employees.

About Forest River

Forest River itself is no small company. It has close to 6,000 employees that work at 71 manufacturing facilities. Its RV product lines include Forest River RV, Coachman RV, and Shasta RV; its boat division includes Berkshire Pontoons and Southbay Pontoons; and its bus division includes Glaval Bus, Elkhart Coach, and Starcraft Bus. In addition to RVs, boat and buses, the company also manufactures mobile offices, manufactured housing, park trailers and cargo trailers.

All combined, Forest River produced $3.3 billion in revenues in 2013, which was up 24% from 2012.

Back again to the manager who didn’t want to work for a big corporation. Over the time I have known him he has consistently described the operating climate at Forest River as anything but bureaucratic. It has more the entrepreneurial spirit of a smaller company. It’s a spirit that comes from the company head Peter Liegl.

Warren Buffett on Peter Liegl

Peter Liegl founded Forest River in 1996 and stayed on as its president when Berkshire Hathaway acquired it in 2005. In Berkshire’s 2005 Annual Report, Warren Buffett described Liegl.

“Pete is a remarkable entrepreneur. Some years back, he sold his business, then far smaller than today, to an LBO operator who promptly began telling him how to run the place. Before long, Pete left, and the business soon sunk into bankruptcy. Pete then repurchased it. You can be sure that I won’t be telling Pete how to manage his operation.”

Buffett has lived up to his word, keeping a hands-off approach to Forest River. At the 2014 annual meeting he noted that he had only called Liegl “three or four times over the past decade.”

Hands-Off Approach

Buffett’s hands-off approach is what has separated Berkshire Hathaway from the typical conglomerate’s top-down management structure. It is what has enabled Peter Leigel to grow Forest River through an entrepreneurial style that values and retains top managers.

And it is what has enabled one of Forest River’s managers to say proudly “I don’t want to work for a big corporation!”

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Tags Forest River, Special Report

Berkshire Hathaway Specialty Insurance

Berkshire’s AirCare Travel Insurance is Money in the Bank

Post author By David Mazor
Post date July 30, 2014

(BRK.A), (BRK.B)

Missed your connecting flight? Sitting on the tarmac unable to take off? Berkshire Hathaway has made a big bet that you’re your travel delays, delayed and lost luggage, and missed connections are money in the bank—yours and theirs.

This past January Berkshire Hathaway Specialty Insurance acquired the assets of the Noel Group’s MyAssist and Insure America in order to move into an area of travel insurance that is different than traditional trip cancellation policies. This insurance focusses on the little inconveniences that bedevil air travel.

Money in the Bank

The innovative AirCare Travel Insurance product is sold for only $25 a domestic flight, and its key feature is real-time monitoring of your flight status and direct deposits into your bank account.

Berkshire Hathaway Specialty Insurance promises that their AirCare Travel Insurance will “start rebooking a missed connection automatically. Help replace lost luggage quickly. Even save you a seat in the VIP Lounge.”

All that sounds nice, but it’s the money in the bank that is the big hook. No paperwork, no submitting receipts or claim forms, the real-time monitoring means that while you are working on rebooking your flight a deposit of $50 is hitting your bank account if the departing or connecting flight takes place two or more hours after the originally scheduled flight. The money only goes up from there. You receive $500 for flight delay that causes a missed connection, and $1,000 if you sit on the tarmac for more than two hours.

Lost and delayed baggage pay-outs include $500 for misplaced luggage that is delayed by more than 12 hours, and $1,000 for bags that are lost or stolen.

In addition to direct EFT deposits, travelers can get the more traditional check in the mail, and another innovation enables travelers to get their funds deposited into their PayPal account in lieu of a bank account.

Weather or Not to Buy Insurance

The convenience of AirCare Travel Insurance is that it can be purchased through a mobile app and charged to a credit card even as you sit in the airport. Purchase rules only require that it only be an hour or more before your scheduled departure and that there not be an active weather warning in effect. This means that as long as the airport is open you can place your bet on your flight being delayed.

Ramping Up Big Time

The new Berkshire Hathaway Travel Protection unit is headed by Noel Group’s John Noel, the man who became a leader in modern travel insurance when in 1985 he launched Travel Guard insurance from his basement home office.

Currently the company has 150 employees at its headquarters in Stevens Point, Wisconsin, and they are looking to hire 2,000 employees in anticipation of strong demand for the new insurance product.

How big is the Market?

The market is huge. John Noel points to the 660 million domestic air travel segments a year, and the 30-percent of all travelers that currently purchase a travel insurance policy, as an indicator of the potential market. That market will even grow larger as an anticipated expansion covering international travel is added on. It’s a total market that currently has no competition, is not covered by travel riders provided by homeowner’s or auto policies, and even if others enter it Berkshire Hathaway Specialty Insurance has positioned itself to be the market leader.

Sounds like money in the bank.

Tags Insurance