Buffett/Berkshire - general news

[UK]

14 minutes ago, backtothebeach said:

About predicting the future of companies: “You can’t confidentally say what is going to happen. Cause you may get some guy like Iger in, who just wants to push everything …”

 

 

This was the line I wanted to doublecheck:)

 

Also: "Well, I've never liked Jum Malone's extreme manipulations. I don't wanna be known as the great manipulator like Jum Malone is. He paid less income taxes than anybody. He just pushed everything to the dry extreme." 

 

Somebody should ask Charlie what he thinks about Brookfield, since it is in a competition with Berkshire and Fairfax in other thread of this forum.

 

Edited October 31, 2023 by UK

[CorpRaider]

"Man is a natural trend follower."

[schin]

On 10/31/2023 at 1:50 PM, UK said:

 

This was the line I wanted to doublecheck:)

 

Also: "Well, I've never liked Jum Malone's extreme manipulations. I don't wanna be known as the great manipulator like Jum Malone is. He paid less income taxes than anybody. He just pushed everything to the dry extreme." 

 

Somebody should ask Charlie what he thinks about Brookfield, since it is in a competition with Berkshire and Fairfax in other thread of this forum.

 

 

@uk - I think he was talking about John Malone.

[UK]

https://www.wsj.com/finance/investing/charlie-munger-will-take-your-questions-now-3e842ab7

[Spooky]

43 minutes ago, UK said:

https://www.wsj.com/finance/investing/charlie-munger-will-take-your-questions-now-3e842ab7

 

Seems like a short transcript with not too much new in there. Hopefully they release the full thing.

[gfp]

Here is one more soundbite from the WSJ interview with Charlie, Re: Apple

 

Charlie Munger isn't too worried about Apple's valuation.

During a recent conversation with the Berkshire Hathaway vice chairman, I asked if he thought the tech giant's shares have gotten expensive to continue being a major Berkshire holding.

Apple is trading at about 26.7 times its projected earnings over the next 12 months, compared with a 10-year average of 18.5, according to FactSet.

“I don’t think we’ve got any rules about what we do at Berkshire. If it makes sense at the time in a rough kind of way, we do it. And that’s our system,” Munger responded. “I would argue that Berkshire would have less advantageous future prospects if we didn’t have our Apple.”

[MCR]

Wondering about the potential impact of the $1.8B - $5B ruling this week against HomeServices (and National Association of Realtors & Keller Williams) on BRK?

 

https://www.nytimes.com/2023/10/31/realestate/nar-antitrust-lawsuit.html?unlocked_article_code=1.7Ew.a41H.EF4-FdX6QOld&smid=url-share

 

Bonus: on Bogleheads found a link to this interesting blogpost about the prospects for appeal of the verdict:  https://notoriousrob.substack.com/p/thinking-about-nars-appeal

[yesman182]

Seems to me that this will hurt small firms a lot more than large firms. When I saw this ruling come out I thought Redfin and Zillow would pop, since they already offer commissions less than 6%. I know I was sure happy with the verdict. I hope we can find a way to have sellers pay less than 6% to sell a house. 

[Spekulatius]

On 11/3/2023 at 4:11 PM, yesman182 said:

Seems to me that this will hurt small firms a lot more than large firms. When I saw this ruling come out I thought Redfin and Zillow would pop, since they already offer commissions less than 6%. I know I was sure happy with the verdict. I hope we can find a way to have sellers pay less than 6% to sell a house. 

Like negotiate with the realtor. Not too hard to pay 5% and less.

Edited November 4, 2023 by Spekulatius

[yesman182]

3 minutes ago, Spekulatius said:

Like negotiate with the realtor. Not too hard to pay 5% and less.

5% on a $1,000,000 house yes,2% no. Seems like other parts of the world are closer to 2% than 5%. 

[John Hjorth]

Attached is the Pilot complaint, ref. the discussion above.

Pilot Corporation v. Greg Abel, Kevin Clayton, Marc Hamburg, Mark Hewett, Scott Thon, Berkshire Hathaway, Inc., National Indemnity Company, and Pilot Travel Centers, LLC, 2023-1068, No. 92889746 (Del..pdf

[gfp]

Thanks John.  It really doesn't sound like the Haslams are way out of line here, so I wonder what the real story from Berkshire's side is.  I assume this will just get negotiated between the parties before too long and we won't hear much more about it.

 

It is interesting that 10x pre-tax earnings seems to be a Buffett sweet spot for buying private companies.  No wonder they haven't made very many deals lately

[John Hjorth]

I personally think like you, @gfp,

 

I have been back reading the original press release of October 3^rd 2017  [ Link ] on the Berkshire website, and I have been wondering if there is any SEC filing related to these three transactions over time, now that Pilot Flying J was privately held [not listed] in the first place? It isen't even in the press release from back then mentioned that NICO is the acquirer.

 

Mr. Buffett isen't exactly a newbie and nowice into such matters, and he is backed by Mr. Hamburg as the inhouse undisputed expert in this stuff. So let's just say I feel confused. 

 

- - - o 0 o - - -

 

Edit : No filing there on SEC, as I see things. [Disclaimer : I'm a complete incapable idiot navigating SEC filings.]

Edited November 5, 2023 by John Hjorth

[gfp]

There isn't any problem with Berkshire's method of accounting, which Berkshire uses on their other acquisitions and understates profitability in a way that is consistent with Berkshire's conservative accounting style and rejection of earnings "optics." 

 

There is no reason Pilot can't keep two sets of books, or simply adjust the Berkshire-kept figures for the excess depreciation and amortization and include derivative hedging gain/loss.  Companies do this all the time.  Hell, a lot of companies keep three sets of parallel books.  That's why I think they will just negotiate an adjustment to the computation of earnings before taxes and settle the matter.  Since it impacts Berkshire's reputation as an acquirer that "does right by their seller partners," I feel like there is more to the story when you consider the other changes Pilot and Berkshire made.  Pilot brought in a commodity trader CEO and started trading a lot more around energy commodities (a business Berkshire exited), Berkshire fired that CEO and the CFO immediately after assuming control, Berkshire exited the more trading-related businesses and focused back on the plain vanilla lines of business Pilot was in at the time of the original deal. 

[Cigarbutt]

22 minutes ago, gfp said:

...there is more to the story...

Clearly.

This open confrontation is unusual.

From a recent CPAJ piece:

"If an acquiree does not adopt pushdown accounting in a change-in-control event, it can elect to apply it in a subsequent period, subject to the requirements for a change in accounting principle. An entity may make a change in accounting principle only if it justifies that the alternative accounting principle is preferable. GAAP requires that companies apply the change in accounting principle retrospectively to the change-in-control event date (ASC 250-10-45-2)."

It looks like BRK 'found' evidence that some kind of material impairment was present AND had been present at least since the time of change of control.

It looks like this goes further than simply an intent to question an 'accounting' principle.

 

Edited November 5, 2023 by Cigarbutt
spelling

[John Hjorth]

What I meant with mentioning my feeling of confusion was related to the fact that the acquisition agreement appears [by the fact that there is an existing dispute] 'non-water proof', thereby leaving loopholes for interpretation and disputes about the understanding of the agreement.

 

Or the filed complaint has no basis or is unreasonable.

 

Mr. Buffett isen't exactly known for playing games with sellers, 'Arnault-style' [think Tiffany], to save a dollar, or more, ref. what @gfp has already said upstream about Mr. Buffetts word and his integrity.

[gfp]

1 hour ago, Cigarbutt said:

 

It looks like BRK 'found' evidence that some kind of material impairment was present AND had been present at least since the time of change of control.

It looks like this goes further than simply an intent to question an 'accounting' principle.

 

 

Just to be clear, this isn't an impairment or a write down, this is a write UP to the acquisition price (a big premium to the carrying value of the net assets of the company under their historical basis - a very normal situation for an acquired company that sells above book value).

 

The write UP results in increased depreciation and amortization which depresses reported earnings but has no effect on "owner earnings" or cash earnings or whatever you want to call them.

 

The only reason there was a 1 month delay in adopting the acquisition method of accounting was that it takes time to assign values to the various categories like identifiable assets, intangibles, goodwill, etc..

[John Hjorth]

Exactly, @gfp,

 

For the unexperienced in accouting, this may perhaps appear complicated, perhaps even counterintuitive.

 

From the complaint itself :

 

Quote

... 7. Pushdown accounting does nothing to change the value or performance of PTC’s business. But the application of pushdown accounting, and the various subsidiary changes in accounting policies that necessarily result, artificially depress the reported earnings of PTC by, among other things, increasing depreciation and amortization expenses and by preventing the recognition of gains on derivative instruments and other hedges in the income statement. ...

 

I personally read it as if this may be about depreciations on the building element of gas stations, some of them built when King of Clubs was Jack and over the years well maintained by Pilot. It must have been among the largest identifiable tangible assets in the acquisition, if not the largest.

Edited November 5, 2023 by John Hjorth

[Gamecock-YT]

1 hour ago, gfp said:

There isn't any problem with Berkshire's method of accounting, which Berkshire uses on their other acquisitions and understates profitability in a way that is consistent with Berkshire's conservative accounting style and rejection of earnings "optics." 

 

There is no reason Pilot can't keep two sets of books, or simply adjust the Berkshire-kept figures for the excess depreciation and amortization and include derivative hedging gain/loss.  Companies do this all the time.  Hell, a lot of companies keep three sets of parallel books.  That's why I think they will just negotiate an adjustment to the computation of earnings before taxes and settle the matter.  Since it impacts Berkshire's reputation as an acquirer that "does right by their seller partners," I feel like there is more to the story when you consider the other changes Pilot and Berkshire made.  Pilot brought in a commodity trader CEO and started trading a lot more around energy commodities (a business Berkshire exited), Berkshire fired that CEO and the CFO immediately after assuming control, Berkshire exited the more trading-related businesses and focused back on the plain vanilla lines of business Pilot was in at the time of the original deal. 

 

makes sense they were probably juicing short term earnings via the trading business that was probably a short term gain and a long term loss. Haslams get more for their shares and stick it to the old man. Berkshire takes control and now taking the chance to stick it to the Haslams.

[gfp]

Berkshire described the big jump in depreciation and amortization at Pilot in the first quarter 10Q:

"

a significant portion of which derived from depreciation of property, plant and equipment assets and amortization of intangible assets that were remeasured to fair value in connection with the application of the acquisition accounting method in 2023"

 

The acquisition premium resulted in a huge amount of goodwill and other intangibles as well as writing up the property & equipment where they could justify it:

 

[Cigarbutt]

^Ok ok, you guys (@gfp and @JohnHjorth) are technically correct.

But my humble (and naive?) interpretation then is that the aimed objective (for BRK) is to pay less for the remaining minority interest ie to effectively transfer less value from the acquiree to the acquired.

The issue (conceptual) is that, if the above (as described) is technically correct, BRK then is trying to oppress minority shareholders. Somehow, this elicits some kind of gut reaction looking for a rational explanation and, on some occasions, economic substance is more important than the accounting language?

At the very least, a key piece is missing (opinion), if previously held fundamental assumptions about the BRK culture continue to apply.

[Munger_Disciple]

I think we are just hearing one side of the story regarding the Pilot lawsuit. It is hard to believe that Berkshire is not abiding by the contract. It is also clear that Berkshire was very unhappy with the way Pilot was being run before gaining 80% control and Abel moved quickly after getting control to replace Pilot's management. I suggest we all wait for the Berkshire side of the story to emerge before speculating too much. 

[gfp]

Warren is addicted to Yen borrowing!   Back at the trough with another prospectus today

https://www.sec.gov/Archives/edgar/data/1067983/000119312523272880/d532609d424b5.htm

[John Hjorth]

He is likely addicted to buying more sogo shosha for the borrowed money, too!

[gfp]

ProPublica article out this morning: 

 

https://www.propublica.org/article/warren-buffett-privately-traded-stocks-berkshire-hathaway-ethics-irs?taid=654cafb069a63b000142e9d4&utm_campaign=trueanthem&utm_medium=social&utm_source=twitter

 

edit: I read the article and there doesn't seem to be a whole lot there.  I was actually confused when the article ended so abruptly.  

Edited November 9, 2023 by gfp