ACQUISITION CRITERIA Section Omitted in 2018 Annual Report

[longterminvestor]

I reviewed the annual reports dating back to 1996.  Each report contains a section titled "Acquisition Criteria" which defines what Berkshire looks for in a target for acquisitions.  I have always read this section with complete awe and amazement because Buffet makes it seem like it is so simple to do business with him.  And when you have something, he wants, I'm sure it is!  The section contains 6 talking points about size, consistent earnings, return on equity with little leverage, good management, simple biz, and an offering price start the section and further paragraph reads a sentence, "We will not engage in unfriendly takeovers....We don't participate in auctions.".  As a business person myself, the line promising an answer to whether there is any interest "customarily within five minutes", is astounding - especially with the size and scope of the deals Buffet wants to see.

 

When I was reading news about the Occidental deal, I thought to myself - this seems a little unlike Buffet.  So I quickly went to the 2018 report to look and see if he changed the Acquisition Criteria section.  To my disbelief, the Acquisition Criteria section was omitted in the 2018 annual report - it is no where to be found.  WOW.  Did he just edit this out on purpose?  Why was this section omitted in the annual report when acquisitions are a vital part of Berkshire's allocation of capital - I am waiting on baited breath for insight from the group. 

 

Reason for the post is more speculative, will Berkshire make some hostile takeovers?  Remember the snubbing of the Unilever deal?

[Dynamic]

This could be an interesting question for the Annual Meeting or for the CNBC interview on Monday.

[Cardboard]

"When I was reading news about the Occidental deal, I thought to myself - this seems a little unlike Buffet. "

 

What is so unlike? He made a deal for a $10 billion preferred at 8%. He has done that many times prior.

 

Cardboard

[petec]

Feels like vintage Buffett to me! 8% on 10bn for a decade (or more) with an 11y (or more) warrant at (more or less) the current stock price. Incredible.

 

Only question I have is what the conditions are under which the pref could be repaid before 10 years are up.

[johnny]

Reason for the post is more speculative, will Berkshire make some hostile takeovers?  Remember the snubbing of the Unilever deal?

 

Hostile-activist-nonagenarian-Buffett would be a very cool final act

[schin]

"When I was reading news about the Occidental deal, I thought to myself - this seems a little unlike Buffet. "

 

What is so unlike? He made a deal for a $10 billion preferred at 8%. He has done that many times prior.

 

Cardboard

 

Yup, GE, Harley Davidson, GS, etc.... that's his thing.

[longterminvestor]

Should have been more clear - Competing for acquisition in public is unlike Buffet.  No doubt, the terms of the deal are very Buffet - its actually pure Buffet with the accounting treatment of warrants.  Seems like he is having to get more aggressive.  When have we seen him using a pawn like OXY to do his bidding for him. 

[Dynamic]

I don't think the Occidental deal is an any way Buffett or Berkshire Hathaway competing to make a hostile takeover.

 

Berkshire is simply offering capital to Occidental that they will only need if they complete the takeover, then Berkshire will be paid interest on that capital and obtain a warrant with the option to take a non-controlling stake in Occidental at a future date at an entry price close to today's market price.

 

Berkshire's funding certainly adds credibility to Occidental's bid in terms of them delivering the asking price, but it's Occidental that is making the acquisition bid, not anyone who has offered funding that can be used to pay for it.

[Guest longinvestor]

Buffett a few years ago wrote about helping CEO’s  “unburden” themselves from capital constraints. This is one such case. What’s likely attractive for the CEO is relative freedom to run the larger company as he needs to. Omaha is not telling them what to do by providing illiquid capital. This is kind of a pay-as-you go model. The typical investment banker’s (hefty) up front fees alone add constraints and somewhat ties their hands often resulting in castrations of pieces of the business, not all necessarily good for the long term. The $10B allows a longer runway for the investee. As opposed to being predatory there’s a lot more trust shown here versus the typical financing.