According to a report in the Wall Street Journal on Tuesday, billionaire investor Warren Buffett and Berkshire Hathaway are going to help Burger King with financing as part of their merger plans with Tim Hortons, a Canadian doughnut and coffee chain.
Buffett’s participation, and the overall price structure, has not yet clearly been defined at this time. The discussions about Buffett’s part of the deal are still ongoing, said the Wall Street Journal while quoting people that are familiar with the transaction.
Some individuals believe that Berkshire Hathaway will receive compensation in the form of preferred shares. Another person said that Berkshire Hathaway – Warren Buffett’s company – is actually going to provide roughly 25% of the overall financing.
This plan was announced by both companies on Sunday, and the Wall Street Journal said that the final deal would roughly value about $10 billion, and it would be announced in a few days.
The current market value of the two companies is $18 billion.
On Sunday, the group said that the company would be based in Canada and the stock would also be traded there, since this is where their largest market is located.
Being based out of Canada would also allow the company to benefit from the favorable tax code in Ottawa.
It is conceivable that Buffett might take flack for the deal because of his outspoken position that the ultra rich in the United States should actually pay more money in taxes.
Warren Buffett and Berkshire Hathaway currently own 10% of BYD, the manufacturer of batteries, phone components and vehicles in China. On Sunday, the company said that it had lost 15.5% in profits during the first half of the year due to a drop in its traditional automobile business.
The company’s net profit fell to $53.3 million, or 327 million yuan. The profit for the same quarter during the previous year was 427 million yuan. Sales did increase by 4% to 25.2 billion yuan, and this was in part due to the strength of new energy vehicles.
The company even suggested that problems with the earnings might continue to carry over until the third quarter. They predicted the January through September nine-month profit period to decline anywhere from 11.7% to 22.4% because of losses in the solar business and the slack caused by the traditional auto business.
The company has very strong roots in the battery business, but has now grown into one of the biggest nongovernment owned auto makers. According to the Forbes real-time rich list, the company chairman Wang Chuan-fu is worth $4.7 billion and ranks 335 on the list.
Back in 2008, Warren Buffett and Berkshire Hathaway purchased nearly a 10% stake in BYD.
The company shares traded in Hong Kong have gained more than half over the last 12 months. BYD has its headquarters in the Shenzhen, which is just north of Hong Kong. They even operate an assembly facility in California.
The energy industry learned about the gloomy side of Warren Buffett during the second quarter of 2014.
The billionaire investor, currently heading up the $200,000 per-share Berkshire Hathaway, sold off a large majority of his stake in ConocoPhillips, based out of Houston. He also sent back some of the shares of National Oilwell Varco and Phillips 66, meaning he sold them back to the market.
Why make this change? It’s possible that he did so because crude oil prices in the US have dropped to $107 per barrel in mid-June, and this past Tuesday prices have dropped below $95 a barrel. Energy stocks were once the best performers on Wall Street, and they are now part of the middle of the pack.
“The group has been weak,” said Gil Baumgarten, president of the wealth advisory firm in Houston known as Segment Asset Management. “They’re losing their momentum. That’s pretty clear to me.”
This past Tuesday, September future prices of West Texas Intermediate dropped to $94.48 a barrel. This is the lowest price point that it has seen in seven months, we learned according to Bloomberg.
The tales of jam packed United States crude oil storage tanks and higher costs of exploration have discouraged investors amidst sinking oil prices, said Baumgarten. Earlier in the month, on a day when stock prices were soaring and the Dow Jones Industrial Average closed 186 points higher, energy stocks were flat overall – a real sign that something’s slowing within the sector, he said.
According to the regulatory document filed by Berkshire Hathaway last week, the company sold off $688 million of ConocoPhillips shares, and they only retained a stake that is worth $108 million as of the previous Tuesday. This is following Buffett’s move last year where he sold off 44% of his ConocoPhillips holdings.
Buffett even sold off $279 million worth of shares of Phillips 66, but still owns two thirds of his overall holding in the refining and midstream firm based out of Houston.
Not to be outdone, Buffett even sold off $125 million worth of shares of National Oilwell Varco, the oilfield service firm based out of Houston. His overall investment in the company is now worth $610.6 million as of the previous Tuesday. His $4.1 billion stake in Exxon Mobil Corp. was not touched.
Finally, Buffett appears a lot more bullish on his $15 billion bet on renewable energy and other power related projects. In December of last year, Berkshire Hathaway made an agreement to pay $1.4 billion for one of the energy transportation units from Phillips 66.
Buying a share of Berkshire Hathaway Class A costs so much money that it could pay for a person’s entire college education. It can even buy two houses in Omaha, Nebraska. To put it another way, you could purchase 40,000 large Blizzards from Dairy Queen, owned by Berkshire Hathaway.
Why doesn’t Warren Buffett split the stock?
A week ago, the Class A shares of Berkshire Hathaway broke the $200,000 mark for the very first time. Berkshire shares are the highest priced stock on the United States stock market. The CEO and chairman, Warren Buffett, has resisted any urge to split the shares. There’s no reason to even consider that he might change the way he thinks now that they have reached this major milestone.
A company will increase the number of shares outstanding during a stock split. This effectively lowers the price of the shares accordingly. Splits do not change the fundamental value of a company by any means, but they do often turn a stock into a more attractive purchase for retail investors.
The Class A shares for Berkshire Hathaway recently went up 1.1% to reach $201,759. This gave Berkshire Hathaway a market value of roughly $327 billion, we learned according to FactSet.
For many years, Warren Buffett has argued that lower share prices would bring about a lot of short-term, speculative trading to the stock of his company. In a Warren Buffett biography titled The Snowball, Alice Schroeder, the author, chronicled why Warren Buffett – the Oracle of Omaha – was strongly against splitting the stock.
“I don’t want anybody buying Berkshire thinking that they can make a lot of fast money,” said Buffett to Alice Schroeder. “They’re not going to do it, in the first place. And some of them will blame themselves, and some of them will blame me. They’ll all be disappointed. I don’t want disappointed people. The idea of giving people crazy expectations has terrified me from the moment I started selling stocks.”
The argument above has fallen by the wayside since Berkshire decided to issue much cheaper stock in 1996 in the form of Class B shares. The newer shares were worth 1/30 of the Class A shares upon being introduced. They called them the “Baby Bs” and the shares were established because Warren Buffett was trying to outdo fund managers that intended to set up a mutual fund like structure that would sell smaller parts of the company in little slices. In 2010, Warren Buffett split the Class B shares at 50 to 1. He used Berkshire Hathaway stock to help pay for the $27 billion purchase of Burlington Northern Santa Fe Corp.
The Class B shares made it onto the S&P 500 in 2010 right after the split, and they are now currently worth 1/1500th of each Class A share, except in the case of voting rights, where the Class B shares only have 1/10,000th of the voting power. This past Thursday, shares were trading at $134.94.
But there is evidence that Warren Buffett is never going to split the Class A shares, and this evidence has been around for many years, especially since the Class B shares were created.
“My ego is wrapped up in Berkshire,” said Buffett to Fortune Magazine during a 1988 cover story. “… I can gear my whole life by the price of Berkshire.”
Quite interestingly, stock splits have been less popular as more public companies start to think like Berkshire Hathaway and Warren Buffett over the years. Between 2008 and 2013, only 12 of the companies on the S&P 500 split their stock each year, according to S&P Dow Jones indices. In a way to compare, during the 1990s, 64 S&P 500 companies, on average, would split their stock each year. During 1997, there were 102 stock splits in total.
Google and Apple are two recent exceptions that are notable. Both company split their stock this year, with Apple surprising people with a seven for one stock split. Apple shares now trade below $100 per share, and before the split the company was trading above $600. “We’re taking this action to make Apple stock more accessible to a larger number of investors,” said Tim Cook, Apple CEO, this past April.
You should not expect Warren Buffett to utter those words anytime in the future.
There’s no doubt that Warren Buffett is one of the most admired investors around the world. But this does not make him and his company, Berkshire Hathaway, exempt from following the rules set forth by the federal Securities and Exchange Commission.
Berkshire Hathaway has agreed to pay $896,000 in order to settle Justice Department accusations that it did not follow antitrust guidelines before purchasing more shares of USG Corporation during December, according to a filing produced by the Federal District Court in Washington this Wednesday.
Underlying the case set forth by the Justice Department against Berkshire Hathaway is the Hart-Scott-Rodino Antitrust Improvements Act. This is a 38-year-old law that ultimately requires investors and companies to notify regulators before carrying out stock purchases or mergers above a certain size.
This is actually one of the most basic parts of any business deal, and acquirers regularly state that they have to wait for HSR approval before going through with their transaction.
Behind the Berkshire Hathaway violation was an older investment in USG, a producer of construction materials, including drywall. Back in 2006, Berkshire Hathaway owned 19% of the outstanding shares of USG. Just a mere two years later, Berkshire Hathaway purchased another $300 million worth of convertible notes. This allowed the company to swap out for common stock at the amount of $11.40 per share.
In 2013, USG redeemed $325 million worth of these convertible notes, and Berkshire Hathaway took advantage of this opportunity by cashing out of its holding, making its overall stake in the company a total of 26%. But, Berkshire Hathaway did not file for HSR before exercising the opportunity to trade in the convertible notes.
After all is said and done, in January, Berkshire filed for HSR approval belatedly, and acknowledged that they were supposed to do so sooner.
This is not the first time that Warren Buffett and company have run afoul of the HSR rules. During the previous summer, it exercised options that gave them the opportunity to buy more shares of Symetra, a company dealing in financial services. One week after the trade, Berkshire Hathaway told the Justice Department that it was supposed to file, but said it was an inadvertent oversight.
At that time, the Justice Department did not recommend the company pay any civil penalties. They asked Berkshire Hathaway to put safeguards in place so that all lapse did not take place in the future.
For many decades, the naysayers have been calling Berkshire Hathaway stock as being overpriced.
But last Thursday, Berkshire Hathaway Class A shares topped $200,000 per share for the very first time. The stock broke $1000 per share back in 1983.
“Everybody has now been proven wrong on it,” said Andy Kilpatrick, the writer who penned “Of Permanent Value: The Story of Warren Buffett.”
For a long time now, Berkshire Hathaway has had the most expensive stock on the US stock market. Warren Buffett chose to never split Berkshire’s Class A shares, but he did choose to create Class B shares which were much more affordable, and he did so back in 1996. These Class B shares sell for roughly $135 per share at this time.
Like any other stock, Berkshire Hathaway stock has had its ups and downs. The Class A shares first reach the six-figure mark back in October 2006. The stock peaked during December 2007, right at the beginning of the Great Recession. As of March 2009, shares fell as low as $70,050 per share.
This past Thursday, shares reached an all-time high of $202,454.99.
Berkshire Hathaway has come quite far since the Warren Buffett investment partnership started by buying shares in the company in 1962 for seven dollars and eight dollars apiece. At the time, the company was a New England textile business.
After the year 1969, Berkshire Hathaway became the main investing vehicle for Warren Buffett. He used the textile firm revenue to begin buying other companies such as See’s Candy and National Indemnity insurance company.
At this point in the company’s history, they have over 80 subsidiaries, and the companies include railroad, utility and insurance businesses. Each and every one of these companies is performing well. Berkshire Hathaway has more than 330,000 employees. The company has major investments in Wells Fargo, IBM and Coca-Cola, and at the time of this writing, they are sitting on over $55 billion worth of cash for future acquisitions.
Earlier in the month, the company based out of Omaha, Nebraska, posted second-quarter profit at $6.4 billion. This equates to $3889 per Class A share.
“It is indeed a remarkable run,” said Kilpatrick.
Berkshire Hathaway looks like it’s going to continue growing, even if it will grow at a slower rate than in the past because of the huge size of this conglomerate.
Warren Buffett, who is going to turn 84 years old later this month, has amassed a huge fortune worth over $65 billion from his shares in Berkshire Hathaway.
Warren Buffett, legendary investor, has faith in General Motors and really believes in the company.
Berkshire Hathaway, Warren Buffett’s holding company, purchased roughly 3,000,000 shares of GM stock during the second quarter, we learned according to a Securities and Exchange Commission regulatory filing.
The vote of confidence from one of the biggest investors in America comes on the heels of GM’s struggle to recover from the historic recall crisis. GM had to recall millions of vehicles due to faulty ignition switches and other problems during the year, and the fund that they set up to compensate victims has already received 63 death claims so far since being created.
Shares of General Motors have dropped nearly 17% so far during this year. Even though the stock rallied during the second quarter, shares fell by 11% in July.
The combined cost of victim compensation coupled with the recalls has cut GM profits by roughly 80% during the second quarter when compared to a year ago. This quarter was the second straight that the recall costs have wiped out profits from this company.
Buffett is well-known for making long-term investments in businesses when shares are being offered at a discount. He’s widely recognized as one of the best investors throughout the world. Berkshire Hathaway Class A shares have risen above $200,000 per share for the first time this past Thursday. It is also the highest priced stock on the stock market in the United States.
Buffett and Berkshire Hathaway are one of the largest shareholders of General Motors stock, and Buffett is also a staunch supporter of Mary Barra, the current CEO.
“She’s dynamite, you couldn’t have a better executive,” he said to CNN this past May.
Buffett Supports Mary Barra, GM CEO
In addition to purchasing more shares of General Motors stock, Buffett proudly owns General Motors cars. In July, he purchased a new Cadillac CTS and was very pleased with the overall buying experience. He decided to send a glowing letter to the CEO praising the sales staff of the local Cadillac dealership in Omaha, Nebraska.
General Motors has staged a major comeback since the federal government rescued the company during the financial crisis. After coming through bankruptcy during 2009, General Motors came back to the public market one year later. Buffett has invested in the company since 2012.
Despite the current recall problems, General Motors vehicle sales have remained strong during the second quarter. United States sales rose by 7% to 806,000 cars and trucks. Its overall market share stayed unchanged during the second quarter.
GM has reported record sales in China, its current largest market. European and South American sales decline’s left global sales little changed at 2.5 million vehicles. The company did post increased revenue.
At this time, self-made billionaire investor Warren Buffett is currently the fourth richest person in the world. He also has a very large following and is known for turning Berkshire Hathaway, a once struggling textile manufacturer, into a $300 billion mega corporation. He did it by investing in sound companies including Geico, American Express and Coca-Cola. Buffett is particularly fond of investing Berkshire Hathaway money into the financials.
It’s no coincidence that the largest Berkshire Hathaway holding is shares of Wells Fargo Bank. Berkshire Hathaway has owned shares of the company for just about two decades. After reviewing Wells Fargo annual reports, it’s quite clear as to why Warren Buffett enjoys owning this bank so much. The bank has the ability to receive cash from depositors and it does not have to pay any heavy interest on the money. The bank then has the opportunity to use this capital practically free of charge in order to make loans to creditworthy borrowers. Then they just profit from the spread.
The next major factor that helps Berkshire Hathaway’s bank investments in companies such as Bank of America and Wells Fargo is the customer relationships. If you choose to bank with Wells Fargo, you’ll most likely consider going to them when you need a loan to start a business, buy a house or purchase a new car. Additionally, you have exposure to the cross-selling of Wells Fargo credit card services and investment services.
Due to current United States regulations, Berkshire Hathaway is not allowed to purchase a bank outright. That’s why they are limited to having only a partial ownership interest. Regardless, these lessons should provide a solid model for investors as they think about adding banks to their portfolio.
Warren Buffett possesses a wide array of knowledge in the insurance business. Berkshire Hathaway purchased Western Insurance and Geico in the 1950s. Then in the late 1960s, the company acquired National Indemnity. Since then, they’ve continued to invest in insurance companies ever since. Buffett loves these companies because of their float. As Buffett quite elegantly tells us in his own words:
“Insurers receive premiums upfront and pay claims later.… This collect now, pay later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit.…”
Insurance providers most often use this profit from the float as a way to invest in safe instruments like corporate and government bonds. If the insurance provider end’s up paying out fewer claims than the money that they receive in premiums, then this is what is called an underwriting profit. If the insurance company manages to maintain a breakeven point on insurance proceeds through a stable level of premium accounts, then it’s capable of setting itself up for a strong position to create higher rates of return.
Many insurance companies will continue to sell insurance even if they no longer feel well compensated for the risk. On the other hand, Berkshire Hathaway only does this when it is expecting to earn some money off of the insurance policies. Taking a potential future liability, without any proper compensation, could end up losing shareholder equity and money.
Insurance operation results can be lumpy, as well as bank operations too. Financial crises do happen. This will often lead to dividend cuts. But it seems obvious that financial stocks like Wells Fargo will continue to be great investments for long-term, patient shareholders with a long 30 year horizon.
Because financials are always going to exist even though there is obsolescence in most industries. Financials that have strong management, provide quality loans to creditworthy borrowers, increase customer relationships and billed recurring revenues are going to continue to see great success even with the short-term economic trouble. That’s why financial stocks are the lifeblood of any economy. They are an excellent investment to add to any portfolio.