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fareastwarriors

By fareastwarriors
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Dynamic Contributor

Dynamic

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Berkshire Hathaway Says Knauf Made Offer for USG at $42 a Share

 

Berkshire Hathaway Inc. said Knauf entities earlier this month made a non-binding offer for USG Corp. at $42 a share, and the two held discussions on the proposed transaction.

 

Berkshire has so far not agreed to support any plan or proposal by Knauf, and there are no agreements between the two parties, according to a filing on Monday. Knauf has not responded to Berkshire’s proposed options on the purchase.

 

That represents a 25.3% premium to Friday's closing price in a down market. Berkshire's stake at $42 per share would be valued at $1,822,295,160 (versus $1,453,931,209.80 at Friday's closing price).

 

Berkshire just filed a 13D/A (hat tip to rocketfinancial.com) which seemingly reiterates that it controls 43,387,980 shares of USG common stock (30.8% of class).

 

This number of shares exactly matches what I got from combining the BRK and New England Asset Management 13-Fs dated 31 Dec 2017 in my BRK Look Through Google Sheet, so does not represent a change. NICO seems to control the BRK 13-F portion of 39,002,016 shares (and parts of it are held via their subsidiaries), while GenRe controls the remaining NEAM portion of 4,385,964 shares. Warren Buffett is deemed to control the whole holding as he has control over NICO and GenRe.

 

This made me look up USG on Google Finance/News, and I found the above Bloomberg article, which presumably explains the 13D/A filing.

 

The juicy part was in the SEC 13D/A filing Notes which include:

Item 4 is hereby amended to add the following:

 

From time to time, beginning many years ago, executives of Gebr. Knauf Verwaltungsgesellschaft KG (“Gebr. Knauf”) and/or C & G Verwaltungs GmbH (“C & G Verwaltungs” and, together with Gebr. Knauf, the “Knauf Entities”) have contacted Berkshire’s Chief Executive Officer (“CEO”) to describe the Knauf Entities’ potential and conditional interest in a transaction with USG. Most recently, the Knauf Entities furnished Berkshire a copy of a letter from Gebr. Knauf to USG dated March 15, 2018 in which Gebr. Knauf submitted an indicative and non-binding proposal for the acquisition of 100% of the outstanding shares of Common Stock of USG at $42.00 per share.

 

On March 23, 2018 Berkshire’s CEO and another Berkshire executive held a telephonic discussion with two executives of the Knauf Entities and three representatives of one of the advisors of the Knauf Entities, during which Berkshire proposed to grant to the Knauf Entities an option to purchase all of the Berkshire Entities’ shares of Common Stock of USG, subject to legal review. Such option would be exercisable only in connection with the consummation of a purchase by the Knauf Entities of all of the outstanding shares of Common Stock of USG that the Knauf Entities did not already own, at a price of not less than $42.00 per share, subject to and in accordance with applicable law and contractual restrictions. The option exercise price per share was proposed by Berkshire to be the price per share paid to such other holders of Common Stock of USG by the Knauf Entities, less the option purchase price of $2.00 per share to be paid to the Berkshire Entities upon entering into a definitive option agreement. The option would have a term of approximately 6 months.

 

The Knauf Entities have not responded to this proposal, and the Reporting Persons do not know whether the Knauf Entities will pursue further discussion with Berkshire of the proposed option or will make an offer to purchase shares of Common Stock of USG. Berkshire has not agreed to support any plan or proposal by the Knauf Entities with respect to the Common Stock of USG, and there are no agreements, written or otherwise, between the Reporting Persons and the Knauf Entities.

 

Depending upon price, market conditions, availability of funds, evaluation of other investment opportunities, and other factors, the Reporting Persons may at any time and from time to time sell or otherwise dispose of some or all of the shares of Common Stock of USG held by them, either as contemplated by the Registration Rights Agreement or in another manner permitted by applicable law.

 

Item 5 is hereby amended as follows:

 

The percentages of outstanding shares reported in this Amendment No. 9 are based on the number of shares of Common Stock disclosed as outstanding on USG’s Form 10-K filed with the Commission on February 14, 2018.

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Krapdivad
Krapdivad

There was a pre-Berkshire meeting by Yahoo Finance today with Laurence Cunningham, Robert Hagstrom, Carol Loomis, and Tom Gayner.    Took a few notes if anyone was interested:   La

fareastwarriors
fareastwarriors

$tsm 👀     

nwoodman
nwoodman

Fascinating purchase by Berkshire.  A couple of thoughts.  1. Is this a cheap way to ride the Apple juggernaut?  2. Is this more Munger than Buffett?  Charlie being interviewed tomorrow on CNBC - coin

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boilermaker75 Rising Star

boilermaker75

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For boilermakers trades, it's much better to sell puts with duration of 2 months or less, over and over again.  It's not riskier than buying shares, assuming you are interested in buying additional shares and size the trade appropriately.  If you get put to, you are happy to own the underlying and if you own a bit more than you intended, you start a covered call selling regimen against the excess shares.

 

If he's the one that got $1.85 for a 3/29 expiry 190 BRK.B put, he's buying BRK.B shares at $188.15 next week - worst case scenario.  It's only risky if you don't want to buy BRK.B shares for $188.15 in a few days time.

 

Selling LEAPS puts two years out on a single company ties up a lot of capital for a long time for a comparatively small upfront premium.  Not a great trade.

 

Yea, that is WAY to risky of a trade for me...I dont care what premiums you are getting upfront.  I havent written puts on BRK in the low $100s awhile ago, but I feel like where we are in the market - you really have no idea what is going to happen.  I think if a big vol induced sell-off occurs, that writing both near-dated, and long-dated puts near 1.1x - 1.x2 BV makes a ton of sense.  Back in Jan of 17 one can sell the January 2019 BRK.B Put at $137.5 strike, and collect a premium of $2.20 (bid price).  So, unless you see BRK.B falling ~37% in the next two years, and are happy to own Berkshire at much lower prices…this could be an interesting way to add synthetically to an already established long position.  Of course if the stock rallies, you collect the premium and nothing more...that trade was obviously a home-run. 

 

Sincerely,

VM

 

It’s a good idea, but given u would have to pay short term capital gain taxes in theses trades (IRA doesn’t allow this), probably not worth it.

 

 

I will happily pay taxes if I am getting a 1% gain on such a short time frame.

 

If I am put to I pay no taxes till I sell the position because the put premium comes off the basis.

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boilermaker75 Rising Star

boilermaker75

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Yea, that is WAY to risky of a trade for me...I dont care what premiums you are getting upfront.  I havent written puts on BRK in the low $100s awhile ago, but I feel like where we are in the market - you really have no idea what is going to happen.  I think if a big vol induced sell-off occurs, that writing both near-dated, and long-dated puts near 1.1x - 1.x2 BV makes a ton of sense.  Back in Jan of 17 one can sell the January 2019 BRK.B Put at $137.5 strike, and collect a premium of $2.20 (bid price).  So, unless you see BRK.B falling ~37% in the next two years, and are happy to own Berkshire at much lower prices…this could be an interesting way to add synthetically to an already established long position.  Of course if the stock rallies, you collect the premium and nothing more...that trade was obviously a home-run. 

 

Sincerely,

VM

 

As globalfinancepartners has pointed out my strategy is less risky than yours. If I get put to I end up paying less for my BRKB than you just did.

 

Think of it as selling insurance with a claim not being a bad thing; essentially you are getting your position at a lower price.

 

I use put writing to enter all my long term hold position. It is like a limit order that pays me while I wait for a better price. The negative is that you might not get your position, but this has rarely happened for me.

 

When we were coming out of the financial crisis I was fully invested. I still wrote a lot of puts and rarely was put to. And when I was I sold a covered call and was usually quickly off of margin. So it was kind of like being on margin, but never owing any interest.

 

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John Hjorth Mentor

John Hjorth

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That USG filing is great.  They're like, "can we get a commitment from you for your block?" And Warren's like, not for free silly!

 

Yes, pretty entertaining read, actually. One can almost picture the whole thing going on - and picture those Germans chewing on it right now. I love it!

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Guest longinvestor

Guest longinvestor

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Interesting, I’ve wondered if Combs does become CEO. Age is an edge for him, plus with Precision Castparts, he’s made the biggest ever deal at Berkshire. I suppose he has the blueprint of the future  tattooed on him.

 

The article suggests mucho apprehension about who in healthcare is in Combs’s crosshairs. “What’s he going to do” “what’s he going to do”

 

 

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Dynamic Contributor

Dynamic

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Another 13D/A filing from Berkshire about Knauf's bid for USG. (Thanks Rocket Financial for the email alert)

 

Again, no change in Berkshire's holding, but it's the Notes that are amended as follows (emphasis mine):

 

CUSIP NO. 903293 40 5 SCHEDULE 13D/A PAGE 10 OF 11 PAGES

 

 

This Amendment No. 10 to Schedule 13D amends and supplements the information set forth in the Schedule 13D filed by certain of the Reporting Persons with the Securities and Exchange Commission (the “Commission”) on January 31, 2006 (the “13D”), as amended thereafter, with respect to the shares of Common Stock, par value $0.10 per share (“Common Stock”) of USG Corporation (“USG”). Capitalized terms used herein without definition shall have the meaning assigned to such terms in the 13D.

 

Item 4 is hereby amended to add the following:

 

On April 10, 2018, Gebr. Knauf filed a preliminary proxy statement and proxy card with the Commission to be used to solicit votes against USG’s four nominees for election to the Board of Directors (the “Board”) at the 2018 annual meeting of stockholders scheduled for May 9, 2018 (the “2018 Annual Meeting”). In addition, on April 10, 2018, Gebr. Knauf issued a press release containing an open letter to the stockholders of USG.

 

On April 12, 2018, in response to an inquiry from a Bloomberg reporter, a spokesperson for Berkshire stated “Berkshire’s present intention is to vote against the four directors proposed by management.”

 

Item 5 is hereby amended as follows:

 

The percentages of outstanding shares reported in this Amendment No. 10 are based on the number of shares of Common Stock disclosed as outstanding on USG’s Schedule 14A filed with the Commission on March 29, 2018.

 

Interesting!

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gfp Veteran

gfp

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Yeah - he was already pissed at that point because they did a horrible deal for DiGiorno frozen pizza with Nestle.  It was hasty, fully taxed, etc..  That's when he made the TV rounds telling everyone he felt "poorer."

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John Hjorth Mentor

John Hjorth

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General news:

 

This is the 16,001st post in the Berkshire forum - since February 1st 2009. Fairfax is still ahead, with almost 500 more posts! I think the next investment idea to close the door among those on the tribune is SHLD [with almost 9,200 posts] - I suppose it's fair to say, that a majority of them are not created out of attraction!

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