Buffett buybacks: Could Berkshire tender stock?

[DooDiligence]

I just cannot imagine any chance of that happening.  It would just look shady to an outsider and I cannot imagine either party agreeing to that.  Imagine you didn't know the parties involved and heard that:

 

A CEO transferred stock to a private foundation and claimed a massive tax deduction, then using his control of a corporation negotiated buying back the same stock he personally donated, and the foundation despite supposedly being independent of both parties agreed to the sale outside of the market.

 

It would look like a CEO is funneling billions of dollars of shareholder money from a corporation he controls but does not own outright, to a private foundation, all while claiming billions of dollars of tax deductions, and raising questions if the transactions happened at fair prices under the circumstances.

 

I hadn't considered that.

[Gregmal]

This might have already have been discussed, but it was a little obscure to me and so I didn't want to attempt to search the thread.

 

 

If BRK was to repurchase shares directly from a shareholder with a large position, like THE GATES Foundation:

 

[*]When BRK transfers money to The Gates Foundation [or their stock agent] in exchange for the shares, would the transaction have to be reported into the public markets at the end of the day?

[*]If not at the end of the day when would it have to be reported?

[*]Can some thoughtful person speculate if there would be strategy to tranfering the money at the end of some period or reporting date so as to benefit BRK?  What strategy might there be in the timing of the purchase?

 

 

In common old Virginia talk-  If BRK is buying from The Gates foundation $2B a week for 10 weeks, when and how will we know?  If BRK doesn't want to tip its hand, does it just wait until the end of some regulated deadline and do the transfer for $20B at the last minute?  Why?  So as to not bid up the price and force BRK to potentially pay more?

 

 

Thank you in advance Super Brains of CoBF.

 

I would imagine both parties find BRK to be of value. Why would one engage with the other in facilitating a transaction that undoubtedly would cause the value of said position to increase, only to no longer have as much of that position to benefit from? Would this not effectively be to the detriment of the Gates foundation?

 

Or, if the angle is that Warren if pulling strings, Bill and Melinda look like patsies and of course, the issues aws raised arise.

 

I also dont get why people not only give the benefit of the doubt, but often ASSUME, Buffett to be this kind old man handing out dollar bills to everyone, and handing out $100s to his shareholders. He is shrewd and savvy and historically cut throat while maintaining an excellent reputation through clever PR and admirable ethics. But he is certainly not bending over backwards to orchestrate some overnight, Houdini like buyback transaction that will blow everyone away...in fact, to me its clear that at this point, despite it being to the detriment of his shareholders(via a massive cash drag), his only remaining goal is to find one last, giant elephant for his trophy room.

[james22]

BRK bought back $1.2B from an individual's estate in 2012.

 

I don't remember anyone questioning the mutually beneficial logic then.

 

[gfp]

I think that the Gates Foundation has an interest in selling BRK.B shares as slowly as they are allowed to.  They have special permission to sell BRK.B shares as slowly as they are currently. 

 

And remember, Warren can't really make use of the tax deduction from donating his shares - so it's hard to spin the whole 'Billionaire transfers controlling stake to foundation, takes multi-billion dollar tax deduction, then repurchases the foundation shares with corporate money' angle as untoward.

 

When he decides to repurchase material amounts of BRK shares, daily purchases in the open market should be enough over time.  I assume he has started doing that after the annual letter came out.  But who knows, maybe he wants to drill it down one more time at the annual meeting to clear his conscience.  Or maybe they buy something enormous this Sunday..

[John Hjorth]

Thank you very much, gfp,

 

I have a specific question for you, related to the matter just discussed in this topic. July 24^th 2018 you posted the following in the "Buffett/Berkshire - general news" topic [link to post]:

 

This list shows the gist of how much the Gates foundation sells on a daily basis, for those who are curious -

 

https://www.sec.gov/Archives/edgar/data/902012/000110465918046338/a18-17436_1ex99d1.htm

 

I have tried to reverse engineer the URL to find those filings for later periods, unfortunately so far to no avail for me.

 

So, how do I look them up at the SEC website? - Thank you in advance.

[valueinvesting101]

 

I also dont get why people not only give the benefit of the doubt, but often ASSUME, Buffett to be this kind old man handing out dollar bills to everyone, and handing out $100s to his shareholders. He is shrewd and savvy and historically cut throat while maintaining an excellent reputation through clever PR and admirable ethics. But he is certainly not bending over backwards to orchestrate some overnight, Houdini like buyback transaction that will blow everyone away...in fact, to me its clear that at this point, despite it being to the detriment of his shareholders(via a massive cash drag), his only remaining goal is to find one last, giant elephant for his trophy room.

 

Going by actuarial tables, average 88 year male has ~87% chance of living another year and ~40% of another five years. Odds for women are around ~50% for living another 5 year.  Being a billionaire with a very different lifestyle, more resources than average person and going by experience of CM, Buffet may have more than 50% chance of working at BRK for another 5-7 year.

 

That will require deployment of another 120-150 billion in addition to the existing cash pile. So hopefully more than one giant elephant especially if we hit downturn in next few years. 

[John Hjorth]

 

I also dont get why people not only give the benefit of the doubt, but often ASSUME, Buffett to be this kind old man handing out dollar bills to everyone, and handing out $100s to his shareholders. He is shrewd and savvy and historically cut throat while maintaining an excellent reputation through clever PR and admirable ethics. But he is certainly not bending over backwards to orchestrate some overnight, Houdini like buyback transaction that will blow everyone away...in fact, to me its clear that at this point, despite it being to the detriment of his shareholders(via a massive cash drag), his only remaining goal is to find one last, giant elephant for his trophy room.

 

Going by actuarial tables, average 88 year male has ~87% chance of living another year and ~40% of another five years. Odds for women are around ~50% for living another 5 year.  Being a billionaire with a very different lifestyle, more resources than average person and going by experience of CM, Buffet may have more than 50% chance of working at BRK for another 5-7 year.

 

That will require deployment of another 120-150 billion in addition to the existing cash pile. So hopefully more than one giant elephant especially if we hit downturn in next few years.

 

Somehow, this discussion is getting a bit morbid, right?

 

Somehow, I'm OK with that, and yet not. [somehow, it's age related for each of us, and for my part, financial planning related to death in separate generations in our families started about six years ago. It's an incredibly hard topic to handle inside a family in the family open, for the future.]

 

valueinvesting101's last post contain - at least to me - a logical flaw : To be the CEO and Chairman of Berkshire does not require you only to be alive - it requires you to be fit & proper. [so cut back on valueinvesting101's probabilities.]

[nickenumbers]

This has been a good continued discussion and I have enjoyed it.

 

I do not assume anything nefarious with the BRK potential purchases from The Gates Foundation.  Nothing of the kind.  I am confident it would be on the up and up.

 

 

BUT, CAN SOMEONE PLEASE TELL ME WHEN ANY PRIVATE PARTY SHARE PURCHASE WOULD BE REPORTED?  WOULD IT BE AT THE END OF THE TRADING DAY AS SOME SUPPLEMENTAL REPORTING Date OR SOMETHING ELSE.

 

How would any above board purchase of a large block of shares directly from another be made known to the public?

 

Thanks.

[John Hjorth]

This has been a good continued discussion and I have enjoyed it. ...

 

nicke,

 

alwaysinvert has earlier in this topic expressed that he consider this topic as a horse already beaten to death. Personally, I expect it to be alive & kicking for years! [ : - ) ]

 

Basically, your question boils down to buying back shares from early Berkshire investors [or their estates] and foundations embraced by Mr. Buffett's gift pledges back in 2006, with amendments [as I read your question].

 

Only Melinda & Bill Gates Foundation [of them] has a shareholder size, so it's subject for regulatory filing. [it's different for early investors on the Berkshire Board, controlling & owning Berkshire stock.]

 

So, by logic, you'll see the information no later than in the next 10-Q, ref. the Berkshire 2018 10-K, p. K-29, ref. "Total number of shares purchased as part of publicly announced program" [inverted].

[gfp]

Hey John-

 

The Gates foundation only files periodically, when they rise above or below the 5% threshold.  The most recent filing was when they fell back below the 5% threshold and the link you referenced was an exhibit to that filing -

 

https://www.sec.gov/Archives/edgar/data/902012/000110465918059501/a18-36147_1sc13da.htm

 

 

Basically, they are required to sell shares to "facilitate compliance with federal excise tax rules limiting excess business holdings by private foundations" - and when Warren gives them a big block of stock they cross above the 5% level, then as they sell they have been falling back below.

----------

 

A little bit of detail on why the Gates Foundation is required to sell BRK.B shares:  A private foundation is not permitted to control a business.  It is also not permitted to own over 20% of a business (in most cases, including this one).  Seems like no problem, but you are required to add to the Foundation's stake the stakes of any "disqualified persons," which includes both Warren and Bill Gates.  And Warren currently controls 31.4% of the vote and 16.5% of the economic interest of Berkshire.  And Bill owns some personally through Cascade as well.  So they are required to sell to "facilitate compliance" and they are allowed to violate the rules as long as they are selling to work towards compliance.

 

-------------

 

One last thing John - that filing you referenced was the most recent filing (when they passed below 5% of the class of B shares, not the company as a whole).  But the proxy statement has an update.  On September 28, 2018, the date of the linked filing, the foundation held 62 million shares of BRK.B.  On 3/6/2019, the foundation held 55,277,174 shares of BRK.B.

 

 

Thank you very much, gfp,

 

I have a specific question for you, related to the matter just discussed in this topic. July 24^th 2018 you posted the following in the "Buffett/Berkshire - general news" topic [link to post]:

 

This list shows the gist of how much the Gates foundation sells on a daily basis, for those who are curious -

 

https://www.sec.gov/Archives/edgar/data/902012/000110465918046338/a18-17436_1ex99d1.htm

 

I have tried to reverse engineer the URL to find those filings for later periods, unfortunately so far to no avail for me.

 

So, how do I look them up at the SEC website? - Thank you in advance.

[gfp]

This has been a good continued discussion and I have enjoyed it.

 

I do not assume anything nefarious with the BRK potential purchases from The Gates Foundation.  Nothing of the kind.  I am confident it would be on the up and up.

 

 

BUT, CAN SOMEONE PLEASE TELL ME WHEN ANY PRIVATE PARTY SHARE PURCHASE WOULD BE REPORTED?  WOULD IT BE AT THE END OF THE TRADING DAY AS SOME SUPPLEMENTAL REPORTING Date OR SOMETHING ELSE.

 

How would any above board purchase of a large block of shares directly from another be made known to the public?

 

Thanks.

 

Yeah, John answered you but I would add that it is not reportable unless the selling shareholder is a reporting insider.  So if First Manhattan sells a block of stock back to Berkshire, they would have to file a Form 4 within 3 business days because Sandy Gottesman is on the board of directors.  If Charlie personally sold a block back to BRK, same deal.  If Charlie's kids sell a block back to BRK, no filing.  We find out the total repurchase in the 10Q.  Any more detail is at the discretion of management

 

(correction - Sandy is no longer required to report sales from First Manhattan, only his personal shares which are far fewer as seen in his recent Form 4 gifts of A shares)

[John Hjorth]

Thank you very much, gfp,

 

I would like to express that I consider it an enormous privilege to have you around here on CoBF and taking the time to explain this stuff. - Enjoy your Sunday! [ : - ) ]

[gfp]

Yo Doo - I live in the city!

[alwaysinvert]

The only way Buffett will countenance reducing the company’s massive pile of shareholder equity is to buy back shares when they are selling at a price he thinks is lower than their true value. This amounts, in his view, to buying out a partner at an attractive price. He says the time may come when the company buys back as much as $100bn of its shares (it bought back $1.3bn last year).

 

From FT today.

 

http://archive.is/XkAtS

[aws]

I hope “There’s only 1,645,000 seats in our church” is an accidental overstatement, as there were closer to 1,641,000 seats left when the 10-K was filed.

 

[alwaysinvert]

With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least. 

[John Hjorth]

With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.

 

The "planting" of the Berkshire investment in Amazon Inc. at Becky Quick by Mr. Buffett released by CNBC within the last 24 hours may be an intentional effort of diversion from that fact.

[alwaysinvert]

So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

 

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

 

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

[SwedishValue]

Some of the early questions around buybacks were decent but Buffett was dancing around them. My impression is that he would be much more aggressive if the stock was trading at a 25%-30% discount to intrinsic value. From this we can infer that Buffett most likely doesn’t believe that the intrinsic value of Berkshire is above 250 USD per B-share. This is somewhat surprising to me, as my intrinsic value estimate would have been above 250 USD prior to Buffett’s comments.

 

Another thing that surprised me was Buffett saying that their aggressiveness in repurchasing shares will not change whether they have. 50, 100 or 200 BN in cash - but only change as a function of Berkshire’s price  relative to intrinsic value. Before today I would have thought aggressiveness should pick up if Berkshire somehow ended up having hundreds of billion in cash, now I am not so sure.

 

What frustrates me a bit, is that Buffett suggested that if Berkshire were to buyback 100 BN, he would do so at prices that would redeem more that 1/5th of outstanding shares. I understand full well that his desire is to not pay up - however, I do not understand in which way Buffett could buyback such huge sums in the open market or through private block purchases. And those were the two only options discussed by Buffett.

 

Somebody ought to ask the question, and specifically ask about possibility of a tender, but it seems like people care too much about other important aspects such as KHC, Buffett’s political endorsements or about management at WFC. Maybe one day someone will actually ask the question.

[gary17]

Some of the early questions around buybacks were decent but Buffett was dancing around them. My impression is that he would be much more aggressive if the stock was trading at a 25%-30% discount to intrinsic value. From this we can infer that Buffett most likely doesn’t believe that the intrinsic value of Berkshire is above 250 USD per B-share. This is somewhat surprising to me, as my intrinsic value estimate would have been above 250 USD prior to Buffett’s comments.

 

Another thing that surprised me was Buffett saying that their aggressiveness in repurchasing shares will not change whether they have. 50, 100 or 200 BN in cash - but only change as a function of Berkshire’s price  relative to intrinsic value. Before today I would have thought aggressiveness should pick up if Berkshire somehow ended up having hundreds of billion in cash, now I am not so sure.

 

What frustrates me a bit, is that Buffett suggested that if Berkshire were to buyback 100 BN, he would do so at prices that would redeem more that 1/5th of outstanding shares. I understand full well that his desire is to not pay up - however, I do not understand in which way Buffett could buyback such huge sums in the open market or through private block purchases. And those were the two only options discussed by Buffett.

 

Somebody ought to ask the question, and specifically ask about possibility of a tender, but it seems like people care too much about other important aspects such as KHC, Buffett’s political endorsements or about management at WFC. Maybe one day someone will actually ask the question.

 

Then Charlie said we will be more liberal about repurchase lol

[John Hjorth]

With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.

So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

 

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

 

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

 

After sleeping on observing the whole Berkshire AGM thing yesterday, I think this is a precise description of the issue at hand. Depending on how the markets evolve going forward, my overall perception is, that Berkshire will likely be a company sitting on a cash pile north of USD 100 B for a prolonged period going forward while growing at a certain clip its businesses - also depending on how in particular the US economy & the global economy in general evolves going forward.

 

Unfortunately, the specific tender question did not come up.

[Guest longinvestor]

With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.

So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

 

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

 

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

 

After sleeping on observing the whole Berkshire AGM thing yesterday, I think this is a precise description of the issue at hand. Depending on how the markets evolve going forward, my overall perception is, that Berkshire will likely be a company sitting on a cash pile north of USD 100 B for a prolonged period going forward while growing at a certain clip its businesses - also depending on how in particular the US economy & the global economy in general evolves going forward.

 

Unfortunately, the specific tender question did not come up.

 

Not sure about them always sitting on $100B for a long time. The options we heard yesterday included the potential 25% SEC limit, an insurance industry blow up of idiot capital, an elephant or two, “100B into Utilities “ and of course buybacks in Munger’s “We’ll be quite good when it is obvious”. Plus there could be more Occidental types in the future.

 

Besides all of the above someone asked if they should be parking their cash in low cost index funds instead of T-bills. That is not off the table for the next guy.

 

And then can always issue a dividend.

 

There’s no calamity in my mind. Berkshire’s price is well below value.

 

Munger kept repeating the theme that we have to endure their stubbornness. They are not about to change. The next guy could be way worse in other ways.

[shalab]

I agree with Charlie that the buyback rules will be relaxed over time. It is obvious in Berkshire's case as well - where P/B kept moving up from 1.1, 1.2 and in an interview he said the buyback threshold may be close to 1.3. Then they bought back at 207 when P/B was more than 1.3. Essentially this helps inform the shareholders before they turn on the spigot.

 

Tender offer is highly unlikely for two reasons:

    - berkshire itself doesnt go into auctions when buying companies

    - he has said he doesn't want to take advantage of partners - mentioned it several times in the meeting yesterday

 

I am happy with 0.3% per quarter buy back rate or about 1% of outstanding shares per year. This can go up to 2-3% per year eventually. If berkshire deploys 100B to buybacks, it won't be Berkshire anymore that can take advantage of market downturns or buy other companies. As Buffett mentioned, a lot of people have invested a lot of cash in Berkshire as a fortress of value and he doesn't want to break that promise. I agree with that.

 

With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.

So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

 

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

 

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

 

After sleeping on observing the whole Berkshire AGM thing yesterday, I think this is a precise description of the issue at hand. Depending on how the markets evolve going forward, my overall perception is, that Berkshire will likely be a company sitting on a cash pile north of USD 100 B for a prolonged period going forward while growing at a certain clip its businesses - also depending on how in particular the US economy & the global economy in general evolves going forward.

 

Unfortunately, the specific tender question did not come up.

[Guest longinvestor]

What matters most is the “conservatively calculated”. More so than the yardstick itself. The best question yesterday was the one about the four Grove method of valuation. It has been discussed around here, why not the insurance business? Buffett was not willing to be pinned down with a number on that.

 

How much?

[alwaysinvert]

I absolutely fail to see how a tender offer would take more advantage of shareholders than open market buybacks. If anything, the terms and proceedings are way more upfront. I think the issue, if any, is precisely the opposite - it would be hard to get people to sell at a price that makes sense when they positively know that Buffett is on the other side of the trade. But there could be ways of framing it that would up the acceptance rate and still be honest, for example saying that we will not make another offer for x years and we will not pay a dividend so this is your only chance of a payout, etc.

 

My impression was that Buffett wanted to be somewhat vague on his plans for buybacks whereas Munger, to Buffett's chagrin, blurted out the honest truth - they will have to pay up more as time goes by. I'm not sure that he actually meant that BRK *didn't* trade at 60-70% of intrinsic value - that was more theoretical reasoning, i.e. saying that obviously we want to buy more if it's cheaper. If he actually has in mind that he will buy lots of stock only when it trades at levels for 170-180 or something of the sort, well, that will probably never happen except in cases where all other stocks fall way more and thus are more attractive. Or, possibly, when he dies.