Buffett/Berkshire - general news

[gfp]

Not material in any way, but it is 'general news' about Berkshire Hathaway -

https://www.wsj.com/articles/berkshire-hathaways-benjamin-moore-to-become-main-paint-supplier-for-ace-hardware-11562788833

 

Another note - GEICO will be paying out more than a few claims on vehicles in New Orleans after yesterday's citywide flood.  The small storm headed this way hasn't even arrived yet.  Projections from the Army Corps are that the Mississippi river could briefly overtop 19.6 foot high levees for the first time as the already-high river runs into storm surge pushing the opposite direction.  Yesterday's flood was just a rain event but the flooding came up quick once the pumps were overwhelmed.

[John Hjorth]

Christ, that reads absolutely terrible, gfp,

 

I hope your family and you are safe.

[boilermaker75]

So sorry to hear that gfp. I too hope you and your family are safe and well.

[DooDiligence]

Crap, NOLA can't seem to get a break.

[DooDiligence]

Not material in any way, but it is 'general news' about Berkshire Hathaway -

https://www.wsj.com/articles/berkshire-hathaways-benjamin-moore-to-become-main-paint-supplier-for-ace-hardware-11562788833

 

Another note - GEICO will be paying out more than a few claims on vehicles in New Orleans after yesterday's citywide flood.  The small storm headed this way hasn't even arrived yet.  Projections from the Army Corps are that the Mississippi river could briefly overtop 19.6 foot high levees for the first time as the already-high river runs into storm surge pushing the opposite direction.  Yesterday's flood was just a rain event but the flooding came up quick once the pumps were overwhelmed.

 

A neighbor of mine took over an old hardware store down the street from my house & turned it into an Ace in 2009.

 

The old place was super unorganized but everyone loved the owners & it was convenient.

 

The new owners are great & prices are competitive with Lowes, which saves me a 30 minute drive.

(I can ride my bike to the Ace.)

 

The new(ish) Ace has thrived & he's added a rental business & most recently, a large warehouse in back to store more materials.

 

---

 

Interesting story on the coop structure of Ace,

 

https://www.forbes.com/sites/clareoconnor/2015/02/11/how-ace-hardware-turned-corner-stores-into-a-4-7-billion-co-op/#5588d26f52e1

 

Too bad BRK can't buy this business.

[gfp]

Oh yeah, we're just fine down here.  Thanks for the concern gentlemen - back to brk talk!

 

So sorry to hear that gfp. I too hope you and your family are safe and well.

 

Christ, that reads absolutely terrible, gfp,

 

I hope your family and you are safe.

[bizaro86]

I though Benjamin Moore only sold through their own dealers?

[gfp]

I though Benjamin Moore only sold through their own dealers?

 

Independent dealers and hardware stores. Ace stores are independently owned. But this deal is to produce the Clark & Kensington brand name paints for Ace, so it’s not all BM branded products

[gfp]

https://www.wsj.com/articles/oxymoron-alert-some-high-yield-bonds-go-negative-11563096601?mod=hp_lead_pos4

 

It will be interesting to see if Berkshire revisits the European debt markets and can pull off some negative yielding bonds at issuance.  You could tell it was a point of pride for him when he issued the SQUARZ securities years ago (they did not work out to be a good deal for Berkshire).  So he certainly does have a curiosity towards issuing negative yielding paper.  Not as good as insurance float but probably better than the volatility of the index put float.

[scorpioncapital]

If Berkshire can replace all its debt and insurance float with negative rate debt why even be in the insurance business? You can shut it down for a few years or decades. But I suspect the problem is volume. No corporation is going to raise negative debt of 70 billion in Europe or anywhere anytime soon.

[gfp]

Here's a pdf of a recent article on Iscar in the Israeli newspaper Haaretz.  I saved it as a pdf because it requires registration to read.

 

https://www.haaretz.com/israel-news/business/.premium-how-warren-buffett-bought-the-best-industrial-firm-in-israel-1.7497532?=&ts=_1563133910334

 

After the company’s acquisition by Buffett, Harpaz was appointed chairman of all the companies in IMC, the metalwork division of Berkshire Hathaway, which includes a large number of companies similar to Iscar such as Tungaloy in China, TaeguTec in India and Ingersoll and Tool-Flo in the United States. Iscar may be the biggest producer of cash for the group — 40% of the total — but from the top floor of the company’s management building in the Migdal Tefen industrial zone, Harpaz controls 160 companies in 65 countries that employ 14,000 people. They have annual revenues of over $3 billion, with a phenomenal profit margin of over 30% — an amazing figure for an industrial firm.

 

Iscar has handed Buffett some $5 billion to $6 billion over the past 10 years, according to sources close to the company. This means Buffett has fully paid off his investment in Iscar, and Iscar still has another $1 billion in the kitty. Its sales have grown by hundreds of percent over this period, and it has a cash flow of $1.1 billion a year from operations — more than twice the figure at the time the company was sold to Buffett.

iscar.pdf

[BPCAP]

The Berkshire discount keeps growing.  I’d be surprised if Buffett didn’t show a record (for them) buyback in the next filing. 

[AdjustedEarnings]

If Berkshire can replace all its debt and insurance float with negative rate debt why even be in the insurance business? You can shut it down for a few years or decades. But I suspect the problem is volume. No corporation is going to raise negative debt of 70 billion in Europe or anywhere anytime soon.

 

Insurance overall is already negative yielding. Other than volume, the second problem is why go through the trouble of shutting something down that works very well? What if rates turn positive in Europe at the time of refinancing the initial issue negative interest debt (they'll have to refi occasionally)? Are they then going to rebuild insurance from scratch? The negative rates are also not negative enough to the degree of income provided by insurance. Cash flows are wildly different too (take a read on how negative rate bonds work). Plus, the way insurance liabilitis work, you can't simply pay them off from a bond issue any way. They have their own attrition based on paid losses. So this process would take forever given the long tail. It would make no sense to shut down Geico, etc. which are shorter duration, shorter tail segments but is profitable and growing. So, for many reasons, this is not a very practical idea.

[gfp]

BNSF getting some pretty great borrowing rates -

https://www.sec.gov/Archives/edgar/data/934612/000119312519194621/d770717d424b2.htm

[xo 1]

Lubrizol picks up an interesting niche player:

https://www.smartbusinessdealmakers.com/articles/topic/lubrizol-buys-bavaria-medizin-technologie-through-german-subsidiary-lubrizol-deutschland/?utm_campaign=Cleveland2019&utm_source=hs_email&utm_medium=email&utm_content=74847407&_hsenc=p2ANqtz-9gkp8xyI4ndLTGdlVjIpXjOmvKv5gIv0p1IIX8adgbtwkFL6ayWpKZ97AJK0-ERLHHSu_7b7DfhNayCZxG0IvxqKEhyyWuwK_AESXF2S1u0DL7bCM&_hsmi=74847407

 

No price is mentioned, but the 100-employee German firm expands Lubrizol's expertise, it appears.

[Dynamic]

There's a new Sec Form 3 filling making an early reveal of the Bank of America position increasing to 950 million shares precisely (was 900 million exactly at 31 March 2019) which exceeded 10% thanks to BAC buybacks being unexpectedly large.

 

I suspect the Bank Holding Company 10% threshold will force them to sell some immediately unless there is any room for an exception being granted provided Berkshire doesn't but any more. The last time they asked for an exception regarding Wells Fargo WFC it was refused, forcing Berkshire to sell a little WFC almost every quarter since, but with new proposals being considered to increase the threshold to 25% perhaps it could be different this time. If any of you have any insights it could be interesting.

 

We'll have to wait until early August for the 10-Q filling to reveal the BAC position value as at 30 June's previous close price (rounded to nearest $0.1 billion), then 14 August for the 13-F to confirm the exact number of shares.

 

I imagine the purchase was made during Q2 rather than since its end but we won't know for sure until later. The BAC price during the early May Trump Trade war slump was quite tempting.

[gfp]

I think Warren knew the pace of BAC's repurchases.  He probably is expecting to be able to keep the position given the evolving guidance on what constitutes "control" as far as the Fed is concerned.  I wouldn't be surprised if Berkshire is allowed to stop selling Wells shares as well.  He may not buy more, but I would expect the government to allow Berkshire to drift up passively.  BRK owns more than 18% of American Express, which itself is a bank holding company.

[Dynamic]

Thanks gfp, I was hoping to hear your perspective as I've only read briefly about the proposals to relax the rule and don't have much feel for how restricted Berkshire truly is right now. I hope it works out like that.

[John Hjorth]

I'm a bit surprised to observe today this move by Mr. Buffett, honestly. How about the three days reporting rule? Does that also apply for the initial Form 3? -If it does, the purchase must be in July, right?

 

Well, at least, 50 M shares at ~ USD 30, that's USD 1.5 B allocated.

 

Edit :

 

I just reread gfp's last post. If I think about it from the perspective : "What is going on - so to say - "behind the curtains" at Berkshire?" on this matter, I come up with that Mr. Buffett have already filed for permission to go above 10 % for both WFC and BAC, and perhaps based on signals in the ongoing positive dialogue with the FED [why wouldn't it be that, with the existing proposal for change of regulation?], he decided already now to buy more BAC.

[Dynamic]

From looking at the footnotes to the filing it appears that when they purchased the 50 million extra shares, they were still below 10% and it was only when they much later learned of BAC's revised share count that they realised they were now above 10% and then had to file Form 3:

Remarks:

The beneficial ownership of the shares of Common Stock reported herein exceeds 10% as a result of the issuer's repurchases of its own securities, based on the issuer's most recently announced number of shares of Common Stock outstanding.

 

If they had just purchased, they would have had to file Form 13D or 13D/A which I imagine would have been the case if they had bought in the last 3 days, as happened with DAL earlier this year, which they thought they were buying below the 10% level, and within 3 days they discovered it was above 10% due to a reduced share count being announced, and having been obliged to file 13D within 3 days, they took the opportunity to buy more prior to that filing being published and filed again to report that further buying, having increased it further to 10.44%). I don't imagine they'll make any further trades in DAL unless rule 13's threshold gets changed.

 

I remember looking at their percentage ownership in Q4 from the 10-K and noting they were not as close to the 10% mark as they were with WFC (It was 9.5% at year end versus 9.8% for Wells Fargo).

 

I realised then that despite the recent low prices (I had recently been put to at $26.50 per share, well below 2018Q3 prices and it had gone even lower at times) they weren't going to have been able to buy anything like another 200 million shares like they did in 2018Q3, then taking them from 700 million to 900 million, and something probably below 52 million, I think, was going to correspond to about 9.9%.

 

They didn't buy more in Q1, so I figured maybe that was it until the buybacks eventually brought them to around 10%. As it happens they have bought more, but after the latest round of stress tests and approval of increased capital return plans, it looks like even if they do have to sell some it's probably a worthwhile purchase to have bought the extra 50 million shares, assuming they probably bought a little below $30 prior to these announcements. If they can keep the shares, even better,

[gfp]

Yeah, the timing of the filing was based on BAC's quarterly results.  The press release with supplemental financial details was filed on July 17th.  Usually Berkshire would wait until a couple days after the 10Q to file something like their Form 3, which was required once they learned of the most recent share count. 

 

In this case, I don't think BAC has even filed their 10Q yet unless I am missing it somewhere.  But the 8K had enough in it that someone probably made the call to file the Form 3.  Its still an SEC filing with a share count listed after all...

 

https://www.sec.gov/Archives/edgar/data/70858/000007085819000037/0000070858-19-000037-index.htm

 

** now that I look at the Form 3, it actually says, "date of even requiring statement: 7/17/2019" - which would be the BAC filing linked above.

 

I wonder where the 10Q is?

[Dynamic]

Thanks for finding that gfp. I actually made a minor factual error in my previous posts. At 31st December 2018, and still at 31st March 2019, Berkshire actually owned 918,900,000 shares of BAC, a modest increase on the 900,000,000 held at 30th Sep 2018, and it was that holding that represented 9.5% of BAC's shares outstanding at year end.

 

Of those, 896,167,600 were directly listed in Berkshire's direct 13F-HR filing and the other 22,751,400 were in New England Asset Management's "Other Manager 1 2" holdings (meaning those held for (1) Berkshire-owned (2) General Re Corporation) and all were shown in Berkshire's relevant SC 13G/A filing, the numbers in which are superceded by yesterday's Form 3.

 

As always, the cover pages of both 13F-HR filings are important to identify the relevant holdings.

[gfp]

Berkshire Hathaway Energy's CalEnergy Resources subsidiary is doing a deal with a distressed company in Britain -

 

https://www.ft.com/content/190b6088-afb7-11e9-8030-530adfa879c2

https://www.energyvoice.com/oilandgas/north-sea/204416/independent-oil-and-gas-agrees-landmark-north-sea-farmout/

https://www.offshore-mag.com/field-development/article/14036954/iog-joining-forces-with-calenergy-for-north-sea-hub-gas-project

 

Maybe 200 million dollars or a bit more when all said and done.

 

Here is IOG's press release on the deal - maybe the most clear:

https://www.independentoilandgas.com/news_detail.php?Title=%20Farm-out%20of%20Southern%20North%20Sea%20Assets

[John Hjorth]

...Thanks for finding that gfp. I actually made a minor factual error in my previous posts. At 31st December 2018, and still at 31st March 2019, Berkshire actually owned 918,900,000 shares of BAC, a modest increase on the 900,000,000 held at 30th Sep 2018, and it was that holding that represented 9.5% of BAC's shares outstanding at year end. ...

 

Geez, I must have been asleep while reading the Berkshire 2018 10-K. It's right there - on p. 12 - BAC shares held 918,919,000 at YE2018. The addition is even visible on Dataroma for 2018Q4, so not NEAM-related.

 

Great find, Dynamic.

[John Hjorth]

... In this case, I don't think BAC has even filed their 10Q yet unless I am missing it somewhere.  But the 8K had enough in it that someone probably made the call to file the Form 3.  Its still an SEC filing with a share count listed after all...

 

https://www.sec.gov/Archives/edgar/data/70858/000007085819000037/0000070858-19-000037-index.htm

 

** now that I look at the Form 3, it actually says, "date of even requiring statement: 7/17/2019" - which would be the BAC filing linked above.

 

I wonder where the 10Q is?

 

gfp,

 

The BAC 2019Q2 10-Q got filed with SEC just after market closing yesterday.