Jump to content

Recommended Posts

Posted
9 minutes ago, John Hjorth said:

Isen't there to some degree confusion about the numbers [money sums] involved in the description of the disagreement with the Haslams?

 

Not sure what you mean here, but there isn't really much disagreement over the number the formula spits out (for the final 20%).  Berkshire had it at $3.23 Billion on their most recent 10-Q and the Haslam family would be happy with that number.

 

I think Berkshire believes, for good reason, that the EBIT that feeds into the formula that spits out the above number has been manipulated and would prefer to plug in a more normalized "un-gamed" EBIT in a year or two.  That was not part of this week's scheduled trial however.

 

The Haslam's suit was mostly just not trusting Berkshire to use the above figure from their 10-Q.  They wanted to know for sure, up-front, that Berkshire was not going to try to screw them, because they are used to living in a world where everybody is trying to screw their partners.  The original contract had dispute resolution protocols for dealing with disagreements over the figure.  The Haslams just wanted a guarantee they would know the exact number before they made a decision to exercise their put.

 

But there is value to putting it behind you and value to minimizing risk to Abel's and Berkshire's reputations.  To Berkshire, I doubt it is predominantly about a further "unjust" $1 billion transfer to the Haslams.  They already got gamed for a bigger figure than that and they knew it.  Chaulk it up to character and incentives and file it with the rest of the lessons learned.

Posted

Thank you, @gfp,

 

You are exactly catching the only specific and for the specific case the only tangible figure I've been able to relate to the case for Berkshire.

 

Estimated economic value of the put option, according to BRK 10-Q reporting :

 

BRK 2023Q2 10-Q - "Redeemable noncontrolling interests - USD 3,210 M" [ p. 3 ], &

BRK 2023Q3 10-Q - "Redeemable noncontrolling interests - USD  3,230 M" [ p. 3 ].

 

To me, it's not totally clear what has triggered the Haslams to sue in the first place. Is it something internally processed by the board, or did they expect more than ~ USD 3,2 billion?

 

Posted
4 hours ago, gfp said:

Remember that this trial was narrowly focused on the application of push-down acquisition accounting that inflated depreciation and amortization and not any of the "illicit incentive" payments.  

 

If a settlement pushes the Haslam's put exercise out a year, it gives Berkshire's side a change to put up a "clean" year of EBIT to plug into their formula.  Alternatively they could have just agreed on a number to part ways permanently with the Haslams.

I’m hoping they came up will a price, WEB paid it and we can watch the haslams run their pro teams into last place.  

Posted
5 hours ago, ValueMaven said:

Wow ... Berkshire likely settled.  Honestly Pilot was never going to win.  

We should see a press release on Monday AM

 

I'd word it "the haslams likely settled". They've got to deal with a legal storm of unintended consequences as their suit unveiled their attempts to manipulate earnings, might as well take what BRK is willing to give them while trying to avoid criminal court.

Posted (edited)

My prediction is that we will see a lot fewer purchases of large "family owned" businesses by Berkshire going forward. With hindsight, Buffett clearly misjudged the character of sellers in this case and wants to put this awful episode it behind him and save Abel time and focus so that he & Abel can focus on more important things. 

Edited by Munger_Disciple
Posted (edited)
1 hour ago, ValueMaven said:

The issue isnt that this is family owned.  The issue is that Berkshire didn't acquire all 100% at once.  


The real issue was that Berkshire made a deal with people of questionable character to put it mildly. 

 

Berkshire would have bought of 100% of Pilot at once but 62% of it wasn't available for sale initially. So in effect Berkshire either had to partner with the prior owners (it did) or walk away. 

Edited by Munger_Disciple
Posted (edited)

BusinessWire [January 7th 2024] : Berkshire Hathaway Reaches Settlement with Pilot Corporation.

 

Typical Press Release format from Berkshire :

 

Quote

Berkshire Hathaway Reaches Settlement with Pilot Corporation

January 07, 2024 08:41 PM Eastern Standard Time

OMAHA, Neb.--(BUSINESS WIRE)--(BRK.A; BRK.B) – Berkshire Hathaway Inc. is pleased to announce that it has reached an agreement to fully settle the Delaware litigation, including all claims and counterclaims, between Pilot Corporation and Berkshire Hathaway Inc., Pilot Travel Centers LLC, and National Indemnity Company.

 

About Berkshire

Berkshire Hathaway and its subsidiaries engage in diverse business activities including insurance and reinsurance, utilities and energy, freight rail transportation, manufacturing, retailing and services. Common stock of the company is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B.

 

Cautionary Statement

Certain statements contained in this press release are “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Berkshire assumes no obligation and does not intend to update these forward-looking statements.

 

Contacts

Marc D. Hamburg
402-346-1400

 

Edited by John Hjorth
Posted
5 hours ago, Munger_Disciple said:

My prediction is that we will see a lot fewer purchases of large "family owned" businesses by Berkshire going forward. With hindsight, Buffett clearly misjudged the character of sellers in this case and wants to put this awful episode it behind him and save Abel time and focus so that he & Abel can focus on more important things. 


How many have we seen in the last decade? Pilot and Van Tuyl are it, right? The rise of private offices and private equity funds playing in the mom-and-pop buyout space means there's a lot more competition in the smaller side of the market (which isn't going to be sizable enough for Berkshire at this point). If Larson-Juhl wanted to sell but keep its management in place, they'd have probably have dozens of specialists to choose from that didn't exist in 2002. And the true whales of family-controlled privates entities, like a Mars or S. C. Johnson, are big enough that it's not apparent that selling to Berkshire makes any sense for them; they can bring in professional managers if they don't have a next generation of family, and it would be easy for them to monetize a slice of the company without giving up family control or involving Berkshire.

Oriental Trading Company was a busted private equity deal—it feels like that sort of things, or buying divisions from other large companies, and purchases of whole public companies—is going to be where Berkshire has to look, compared to the handshake deals Buffett used to pride himself on.

Posted (edited)
55 minutes ago, xboojum said:


How many have we seen in the last decade? Pilot and Van Tuyl are it, right? The rise of private offices and private equity funds playing in the mom-and-pop buyout space means there's a lot more competition in the smaller side of the market (which isn't going to be sizable enough for Berkshire at this point). If Larson-Juhl wanted to sell but keep its management in place, they'd have probably have dozens of specialists to choose from that didn't exist in 2002. And the true whales of family-controlled privates entities, like a Mars or S. C. Johnson, are big enough that it's not apparent that selling to Berkshire makes any sense for them; they can bring in professional managers if they don't have a next generation of family, and it would be easy for them to monetize a slice of the company without giving up family control or involving Berkshire.

Oriental Trading Company was a busted private equity deal—it feels like that sort of things, or buying divisions from other large companies, and purchases of whole public companies—is going to be where Berkshire has to look, compared to the handshake deals Buffett used to pride himself on.

 

💯 Good point. PE is acquiring everything in the private space so opportunity set is almost non-existent there for Berkshire. 

Edited by Munger_Disciple
Posted
12 hours ago, gfp said:

 

It will be interesting to see when we get the 10-K for 2023, if this includes a sale of the final and remaining part of PilotJ to Berkshire, or not. 

 

The Haslams instead of being partners with Berkshire and Berkshires shareholders seem to be a pretty troublesome, stressful, cumbersome and taxing minority shareholder to tug around as a drag if you ask me. It's just such a no-go. *sigh*

Posted

I have thought deeply about future of large acquisitions.  There is a market for businesses in size, it does exist, maybe less in terms of "businesses inside circle of competence", however market for the type of owner/the people who control those businesses is different today than 30 years ago.  The elephants are out there, just the incentives have changed for the people that own them.  There are far fewer Al Ueltschi's (Flight Safety) , Mrs. B's (Nebraska Furniture Mart) , Clayton Family (Clayton Homes), and Paul Andrew's (TTI) today - to name a select few.  I believe Mr. Buffett used to tell Paul Andrews that his executive comp was too low, and Andrews used to say "We can talk about that next year Warren".  These people cared about their companies, their employees, and the legacy mattered.  Today, the legacy is how much can I get?  And the "I" is not the founding family, the "I" is the PE firm that levered the business and needs to transact for the fees and "fund performance".  The sellers incentives have changed.  People are scared to do "deals on a hand shake" today - the attorney wont allow it (no fees!).  For the select few that still do, Berkshire is a permanent home.  And Berkshire will see some deals in the future, it will happen – just gotta be patient. 

 

Similar issue has occurred in the large insurance placements (what was once called "super cat" business) where there was once ready market and now the moat has deteriorated.  There was a time where large limits could only be put up by 1 or 2 players (AIG/Berkshire) - getting multiple insurance companies to take slices of risk quickly was difficult.  That moat has eroded today with technology, spreadsheets, ease of transferring large amounts of PML data and getting layered deals much much faster in consortiums.  

 

Where Berkshire was once a home for big insurance and big businesses, things are changing.  Berkshire rode the wave to where it is today.  There was a time when Berkshire was manufacturing textiles....became a dinosaur.  I have opened my eyes to the fact that Berkshire may have to pivot to new businesses/models/opportunities in a similar fashion that Berkshire left textiles for insurance.  Do not know what that iteration looks like but I am open to it because of the culture inside the enterprise.  I think on iteration that has occurred is Berkshire moonlights as a “Merchant Bank” franchise.  Mr. Buffett can throw down billions fast with no strings and extract his terms. 

 

Regarding Pilot lawsuit, things are not always complete bliss in Omaha even with a Mrs. B for example.  Mrs. B never sued, but she was disgruntled.  Reports were she was unhappy with grandsons but who really knows.  She left to start her own shop down the street that quickly grew to be #3 seller of carpet in Nebraska in a few short years.  Mr. Buffett and Mrs. B did kiss and make up, the business was eventually purchased by Berkshire.  Things happen - Mr. Abel will deal with them moving forward.

Posted

Good post.

 

I think there will be plenty of opportunity in Energy.  They'll continue to be a player in that area.

 

And, unfortunately, I'm 100% confident in mankind mucking up the markets again and BRK being there with it's fortress cash to be lender of last resort.  History doesn't repeat, but it sure the hell rhymes, lol.

 

I hope, for Greg Able's sake, that his patience in waiting for a fat pitch is viewed in the same lens as Warren and not seen as not being able to allocate cash and make deals.

Posted
2 hours ago, longterminvestor said:

I have thought deeply about future of large acquisitions.  There is a market for businesses in size, it does exist, maybe less in terms of "businesses inside circle of competence", however market for the type of owner/the people who control those businesses is different today than 30 years ago.  The elephants are out there, just the incentives have changed for the people that own them.  There are far fewer Al Ueltschi's (Flight Safety) , Mrs. B's (Nebraska Furniture Mart) , Clayton Family (Clayton Homes), and Paul Andrew's (TTI) today - to name a select few.  I believe Mr. Buffett used to tell Paul Andrews that his executive comp was too low, and Andrews used to say "We can talk about that next year Warren".  These people cared about their companies, their employees, and the legacy mattered.  Today, the legacy is how much can I get?  And the "I" is not the founding family, the "I" is the PE firm that levered the business and needs to transact for the fees and "fund performance".  The sellers incentives have changed.  People are scared to do "deals on a hand shake" today - the attorney wont allow it (no fees!).  For the select few that still do, Berkshire is a permanent home.  And Berkshire will see some deals in the future, it will happen – just gotta be patient. 

 

Similar issue has occurred in the large insurance placements (what was once called "super cat" business) where there was once ready market and now the moat has deteriorated.  There was a time where large limits could only be put up by 1 or 2 players (AIG/Berkshire) - getting multiple insurance companies to take slices of risk quickly was difficult.  That moat has eroded today with technology, spreadsheets, ease of transferring large amounts of PML data and getting layered deals much much faster in consortiums.  

 

Where Berkshire was once a home for big insurance and big businesses, things are changing.  Berkshire rode the wave to where it is today.  There was a time when Berkshire was manufacturing textiles....became a dinosaur.  I have opened my eyes to the fact that Berkshire may have to pivot to new businesses/models/opportunities in a similar fashion that Berkshire left textiles for insurance.  Do not know what that iteration looks like but I am open to it because of the culture inside the enterprise.  I think on iteration that has occurred is Berkshire moonlights as a “Merchant Bank” franchise.  Mr. Buffett can throw down billions fast with no strings and extract his terms. 

 

Regarding Pilot lawsuit, things are not always complete bliss in Omaha even with a Mrs. B for example.  Mrs. B never sued, but she was disgruntled.  Reports were she was unhappy with grandsons but who really knows.  She left to start her own shop down the street that quickly grew to be #3 seller of carpet in Nebraska in a few short years.  Mr. Buffett and Mrs. B did kiss and make up, the business was eventually purchased by Berkshire.  Things happen - Mr. Abel will deal with them moving forward.

 

@longterminvestor,

 

What is your geographical scope and / or basis for your considerations above?

Posted (edited)
4 hours ago, CassiusKing1 said:

Good post.

 

I think there will be plenty of opportunity in Energy.  They'll continue to be a player in that area.

 

And, unfortunately, I'm 100% confident in mankind mucking up the markets again and BRK being there with it's fortress cash to be lender of last resort.  History doesn't repeat, but it sure the hell rhymes, lol.

 

I hope, for Greg Able's sake, that his patience in waiting for a fat pitch is viewed in the same lens as Warren and not seen as not being able to allocate cash and make deals.

 

Good posts @CassiusKing1 and @longterminvestor.

 

I am quite optimistic about Berkshire going forward. It won't be able to hit the ball out of the park due to its size, but it will be a very safe, satisfactory investment one could keep for a long time.

 

Energy business is almost certain to grow and it is pretty much in Greg's wheelhouse. BNSF isn't going anywhere for 100+ years. Yes, super cat business has more competition but I would argue not much talent. Ajit is super patient and will do great in super cat & reinsurance (I am almost certain he made boatloads of money for Berkshire in 2023 through his FL super cat coverage). Moreover he expanded the insurance business into more bread and butter commercial lines, similar to GEICO on the consumer side and both of these would do fine. And all the niche, specialized industrial operations will do fine. And so will special consumer businesses like See's, NFM, etc.

 

On the stock investing side, I am happy with Ted & Todd. They both seem like great people first and foremost and very talented. I am fine if they just match the market. They add enormous value by being a good sounding board for Greg on acquisitions. They added enormous value already by convincing Warren of Apple's virtues which led to the massive stake in Apple.  


So the future will be pretty decent post Warren. It is really a credit to Buffett that he & Charlie built a company that will thrive for a long time after them. And I would second the great Charlie Munger's advice during the 2023 annual meeting: "Just hold the damn stock."

 

Edited by Munger_Disciple
Posted
10 hours ago, longterminvestor said:

Where Berkshire was once a home for big insurance and big businesses, things are changing.  Berkshire rode the wave to where it is today.  There was a time when Berkshire was manufacturing textiles....became a dinosaur.  I have opened my eyes to the fact that Berkshire may have to pivot to new businesses/models/opportunities in a similar fashion that Berkshire left textiles for insurance.  Do not know what that iteration looks like but I am open to it because of the culture inside the enterprise.  I think on iteration that has occurred is Berkshire moonlights as a “Merchant Bank” franchise.  Mr. Buffett can throw down billions fast with no strings and extract his terms. 

 

This whole post seems about right to me. Berkshire's batting average in large acquisitions has gone down, even if nothing has been as bad as Dexter Shoe (the Precision Castparts acquisition in particular seems to gone terribly, although as a PCP shareholder at the time it bailed me out), showing the importance of BHE; if there's nothing tempting in the market, they always have the backup option of bunting for a single by building more solar/wind at reasonable, predictable returns, and while I think Pilot is a perfectly fine business . Between that and tuck-ins at Lubrizol, MiTek, etc., they have consistent options.

It really shows the franchise value of Constellation Software, though, in their ability to swallow all sorts of plankton-scale companies at a rate meaningful at what's now a $70 billion company (in addition to their recent pivot to buying large companies from forced sellers).

Posted (edited)
2 hours ago, xboojum said:

 

This whole post seems about right to me. Berkshire's batting average in large acquisitions has gone down, even if nothing has been as bad as Dexter Shoe (the Precision Castparts acquisition in particular seems to gone terribly, although as a PCP shareholder at the time it bailed me out), showing the importance of BHE; if there's nothing tempting in the market, they always have the backup option of bunting for a single by building more solar/wind at reasonable, predictable returns, and while I think Pilot is a perfectly fine business . Between that and tuck-ins at Lubrizol, MiTek, etc., they have consistent options.

It really shows the franchise value of Constellation Software, though, in their ability to swallow all sorts of plankton-scale companies at a rate meaningful at what's now a $70 billion company (in addition to their recent pivot to buying large companies from forced sellers).

 

You are right that acquisitions will get harder. I think they still have opportunity for additional acquisitions in the energy space in addition to internal growth opportunities. If the interest rates stay higher for longer, opportunities will likely get better. In the mean time they are getting paid quite well to hold cash. And they can always buy back more stock if nothing else happens and stock doesn't get too expensive. 

 

I am sure you are right that Constellation Software has more opportunities but how can one pay 35X 2024 earnings? Is there any room for error at that type of valuation? 

Edited by Munger_Disciple
Posted
13 hours ago, Munger_Disciple said:

 

You are right that acquisitions will get harder. I think they still have opportunity for additional acquisitions in the energy space in addition to internal growth opportunities. If the interest rates stay higher for longer, opportunities will likely get better. In the mean time they are getting paid quite well to hold cash. And they can always buy back more stock if nothing else happens and stock doesn't get too expensive. 

 

I am sure you are right that Constellation Software has more opportunities but how can one pay 35X 2024 earnings? Is there any room for error at that type of valuation? 

Can’t pay that for CSU. Have to wait for bear market. 


ML is standing on the shoulders of WB & CM for sure. He even decentralized the Omaha function. Everyone in the CSU org is encouraged/compensated to allocate capital (with strict rules and Bernie’s blessing of course)

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...