Buffett/Berkshire - general news

[Dynamic]

And this deal would more than offset the $1.88bn pre-tax proceeds from the USG takeover that completed last week. The news and its timing before the Annual Meeting also helps remind execs that Uncle Warren may be willing to help out with funding when they're doing deals.

[DooDiligence]

And this deal would more than offset the $1.88bn pre-tax proceeds from the USG takeover that completed last week. The news and its timing before the Annual Meeting also helps remind execs that Uncle Warren may be willing to help out with funding when they're doing deals.

 

Bank

[Libs]

Buffett no longer claims BRK should beat the S & P?

 

Seems like a bombshell comment, IMO:

 

 

He's basically been saying that since like 1957.  He might be right this time...I wouldn't bet on it.

 

I'm sure that within the last 5 years, in the letter, he said he expected to marginally outpace the S & P going forward. I don't remember exactly when it was, but it was not that long ago.

 

I find it somewhat shocking. So why own Berkshire?

 

 

 

 

[Dynamic]

I'd say that the difference is likely to be marginal, probably very slightly in favour of Berkshire, especially if you can buy it when it's cheap. And there's likely to be a little less variation with Berkshire and I believe the business quality, long-term owner-oriented thinking and the honesty of accounting is better with Berkshire than the S&P500 constituents collectively. That's why I'd be happy to hold 100% Berkshire just like 100% S&P500 index.

 

Reading forward from about this post in the 2018 valuation thread is probably quite informative regarding a few opinions around here in relation to that question, but there are certainly times when a Value Investor can identify at least one position that is likely to do significantly better than Berkshire and when they may be wise to switch a substantial portion of their portfolio into that, at least until the Price/Intrinsic Value ratio switches back in favour of Berkshire (hopefully thanks to a price rise)

[woodstove]

The Occidental deal looks very nice to me.  Long term value participation, or just take the money if not interested in a decade.  I think these sorts of deals are way better than rebuying shares.  To be hoped for: another nine such opportunities!

[Guest longinvestor]

Buffett’s Berkshire Hathaway to invest $10 billion in Occidental Petroleum for Anadarko takeover

 

https://www.cnbc.com/2019/04/30/buffetts-berkshire-hathaway-to-invest-10-billion-in-occidental-petroleum-for-anadarko-takeover.html

 

$90B to go.

 

Noice!

 

$90B 2 go is exactly what I thought when I saw it  ;)

 

Hmm. Anadarko has other assets that may fit well in the Berkshire household plus Occidental has a market cap of $45 B... just sayin

[Guest longinvestor]

Berkshire's preferences of what they want to own are clear. They are mostly earthly assets. On the ground, just below and just above it. Gas, pipelines, railroad etc. In contrast, the FANGs' assets are mostly in the ether; the cloud, eyeballs, ads, stolen personal data etc. The markets have marked their assets ethereally($2.5 Trillion) vis a vis the earthly Berkshire ($500 B).

 

Which of these two types of assets can the world live without? We shall see in due course.

[aws]

Did they say how long the warrants are good for?

[gfp]

Did they say how long the warrants are good for?

 

"The preferred stock to be issued to Berkshire Hathaway will be redeemable for cash (in whole or in part) at the option of Occidental commencing on the tenth anniversary of issuance at a redemption price equal to 105% of the liquidation preference plus accumulated and unpaid dividends, if any. The preferred stock will also be mandatorily redeemable for cash (in whole or in part) upon certain specified capital return events. Dividends will be paid in cash or, at Occidental’s option, in shares of Occidental common stock. The warrant to be issued with the preferred stock may be exercised in whole or in part and from time to time, until one year after the redemption of the preferred stock.

"

 

- obviously this is all moot if Oxy can't close the deal for Anadarko, so Berkshire may still be disappointed.  But this is a very good deal.  The accounting for this type of thing usually has to value the 11 year (minimum) duration warrants for $5 billion worth of OXY stock at 62.50 according to Black Scholes, and then assign the balance of the $10 Billion commitment to the preferred shares.  The warrant is extremely valuable, so the income security is very attractive.  Standard Buffett deal - our customer gets to count the financing as "equity" and we get the income hurdle Warren requires to step off the sidelines.  Sure, OXY can skip dividends (which accrue at 9% then) or pay in OXY stock - but this is a very attractive deal.

 

Here's hoping it actually closes

[aws]

Nice, my quick calculation shows about a 20.00/sh value for the warrants.  Makes the warrants worth about 1.6 billion and the preferred at 8.4 billion, so Berkshire will be getting about a 10% yield on the preferred portion if you think of it that way.

[gfp]

https://seekingalpha.com/article/4258511-berkshire-violated-board-independence-rules

 

The writer claims Berkshire has violated board independence rules due to related party transactions between Walter Scott and subsidiary Berkshire Hathaway Energy.  Walter Scott's governance committee was taken off the task of reviewing related party transactions.  The Audit Committee now handles this job.

 

Writer does not appear to understand the math involved in repurchases and equates them to Berkshire Hathaway buying Scott's BHE shares directly as opposed to BHE repurchasing the shares, increasing all remaining shares' pro rata stake.

 

Board member Greg Abel is also a significant BHE shareholder, with his shares able to be converted into over $400 million worth of Berkshire Hathaway stock.

 

I believe the formulas for BHE valuation under these transfers is long set in writing.

 

Personally, I don't care about Walter Scott selling shares back to BHE while serving as a BRK.A board member.  I doubt the NYSE cares either

[Dynamic]

Thanks @gfp for explaining the flaws in that argument. I read a few paragraphs of it yesterday and thought it didn't seem right but that it wasn't worth my reading in detail. Personally, like Buffett, I'd rather have directors who have taken meaningful long term stakes in the business with their own money rather than complying with somewhat arbitrary good-governance checklists drawn up by conventionally-minded academics. I'm sure Berkshire's Board would be more effective than almost any other in doing the difficult things that may be required of them.

 

Regarding the Occidental Petroleum warrants etc., thanks for the interesting perspective, @aws. That's a rational way of looking at it, assuming the deal goes ahead. It make it look particularly attractive in providing a fairly certain acceptable return over a decently long period with a moderate headline rate plus quite a good chance of a significant upside from the warrants with no immediate tax implications upon exercise.

 

While I'm sure the OXY stock is highly cyclical and linked to the wild swings in oil prices, and is probably relatively close to a cyclical low, the warrants, while currently out-of-the-money are likely to be worth a fair amount in 2030 dollars, and a discount to that in present value. Even with a fairly high 10% discount rate over 11 years giving a 1:2.85 discount of PV:FV, the present value would be $20 if the $62.50-strike warrants are worth about $57 in 2030, implying an OXY future value of around $120 per share, which certainly isn't out of the question especially being so cyclical and so far in the future.

 

I'm personally hesitant in attempting to value oil & gas in a decade's time when I see renewables and vehicle electrification showing so much potential to displace them rapidly in many areas of the economy as they become cheaper, so I feel it's outside my circle of competence to make long term investments unless they're cheap regardless of a substantial future decline, but I think the odds that Warren will obtain a decent return given current cyclical low valuations are pretty good.

 

In the mean time, the warrants will probably receive a Black-Scholes like valuation for Berkshire's accounting purposes, based on recent history of OXY's stock price behaviour at each accounting period, which could vary quite a bit throughout the cycle.

 

Incidentally, Yahoo Finance reports that the jet-tracker found the Occidental corporate jet flew to Paris after Omaha, perhaps to make overtures to Total regarding Mozambique assets that they would need to sell as part of the potential acquisition.

[rogermunibond]

Some interesting comments from Munger on WFC's past leadership.

 

https://www.wsj.com/articles/charlie-munger-doesnt-want-wall-street-making-the-damn-decisions-at-wells-fargo-11556810465

[Dynamic]

Sarang Gupta on Seeking Alpha has some interesting takes on the Occidental deal too, using some variations on Black Scholes but pointing out their limitations and also noting that the funding is in essence financed by insurance float, meaning that the return to BRK shareholders could be considered to be leveraged to around 18% if you decide to look at it that way.

[sleepydragon]

Some interesting comments from Munger on WFC's past leadership.

 

https://www.wsj.com/articles/charlie-munger-doesnt-want-wall-street-making-the-damn-decisions-at-wells-fargo-11556810465

 

https://www.cnbc.com/2019/03/28/wells-fargo-ceo-tim-sloans-retirement-a-mistake-says-jeff-sonnenfeld.html

[John Hjorth]

CNBC - Tech [May 2^nd 2019] : Berkshire Hathaway has been buying shares of Amazon, Warren Buffett says.

[james22]

:o

[John Hjorth]

James,

 

Take it easy! That "one guy at the office" "only" has an investment mandate of USD 13 B, at the moment -& counting! [ ; - D]

[mwtorock]

https://www.wsj.com/articles/buffett-partner-charlie-munger-has-a-side-gig-designing-college-dorms-11556807102?mod=itp_wsj&ru=yahoo

 

Charlie has secret hobby of designing college dorms  ;)

[gfp]

Good news for BRK - sounds like Chevron is bowing out and the OXY deal with BRK will go through

 

https://www.wsj.com/articles/chevron-won-t-increase-offer-for-anadarko-11557405500?mod=hp_lead_pos4

[DooDiligence]

https://www.theledger.com/news/20190503/highland-homes-sold-to-berkshire-hathaway-subsidiary

[Spekulatius]

Couldn’t help but post this buffet quote:

Buffett says: "You know how our life span depends on how long our parents live? Well, I watch my mother's exercise and diet very carefully. She has 40,000 miles on her bike." Chuckling, he dives into sides of hash browns and spaghetti.

https://www.latimes.com/archives/la-xpm-1991-04-07-tm-354-story.html

[alpha]

https://www.theledger.com/news/20190503/highland-homes-sold-to-berkshire-hathaway-subsidiary

 

is on a pace to build more than 7,000 homes this year, including Highland Homes’ total.

 

Wow Clayton is building enough housing for an entire town in 1 year!

 

[Charlie]

Allan Mecham increased his Berkshire stake by 55,05%.

 

https://www.dataroma.com/m/holdings.php?m=AV

 

 

Cheers!

[james22]

The Occidental deal looks very nice to me.  Long term value participation, or just take the money if not interested in a decade.  I think these sorts of deals are way better than rebuying shares.  To be hoped for: another nine such opportunities!

 

Or just one (of size). I'm hoping for an opportunity to recapitalize FNMA and FMCC.

 

Don't expect they'd be allowed to invest more than $20B or so, but Buffett could ride off into the sunset if he was able to invest the entire required $135B+.