Next Berkshire acquisition speculation

[Spekulatius]

Berkshire’s sweet spot are private business where the owner want to keep everything the same and not necessarily looks for he highest bidder. I think it’s unlikely Berkshire buys public company  because the Board needs to shop it around and Berkshire does not participate in auctions.

 

The only way I can see them buying a public company is when the market is in distress and the shareholders or controlling owner want to sell quickly. Otherwise, somebody else is going to bid more.

[ourkid8]

2 hours ago, Spekulatius said:

Berkshire’s sweet spot are private business where the owner want to keep everything the same and not necessarily looks for he highest bidder. I think it’s unlikely Berkshire buys public company  because the Board needs to shop it around and Berkshire does not participate in auctions.

 

The only way I can see them buying a public company is when the market is in distress and the shareholders or controlling owner want to sell quickly. Otherwise, somebody else is going to bid more.

Not true. How about Alleghany? The market was not in distress when Berkshire made the offer.  It was a fair offer and Berkshire allowed a go shop period. 

[Spekulatius]

9 hours ago, ourkid8 said:

Not true. How about Alleghany? The market was not in distress when Berkshire made the offer.  It was a fair offer and Berkshire allowed a go shop period. 

You are right. That said, the deal was announced on March 2022 when the market was quite choppy due to the war in Ukraine. So I think Berkshire benefited somewhat from this.

 

On another note, I wonder if LSXMK could be attractive to Berkshire, once they clean up the structure. They own already 20% of it and are the largest shareholder.  I think owning Siri would be attractive to Berkshire as it fits right in their wheelhouse in terms of the business they tend to like.

 

This could happen if a Malone decides to call it quits.

[crs223]

3 hours ago, Spekulatius said:

owning Siri would be attractive to Berkshire as it fits right in their wheelhouse in terms of the business

 

BRK likes to buy businesses where it’s clear what the business will look like in 50 years.

 

Comparing to Sees, furniture, jewelry, insurance, manufactured homes, banks, railroad…  doesn’t seem to me that SIRI fits.  I use and pay for SIRI but I doubt it will look the same in 50 years given the changing world of entertainment, communication, and even cars.

 

[Spekulatius]

33 minutes ago, crs223 said:

 

BRK likes to buy businesses where it’s clear what the business will look like in 50 years.

 

Comparing to Sees, furniture, jewelry, insurance, manufactured homes, banks, railroad…  doesn’t seem to me that SIRI fits.  I use and pay for SIRI but I doubt it will look the same in 50 years given the changing world of entertainment, communication, and even cars.

 

The terminal value question is a good one and I can’t answer either. I think the position that Berkshire has was established by T&T not Buffett.

[longterminvestor]

On 3/4/2023 at 10:52 PM, ourkid8 said:

Not true. How about Alleghany? The market was not in distress when Berkshire made the offer.  It was a fair offer and Berkshire allowed a go shop period. 

Not a good comp for a lot of reasons, its risk bearing insurance, Mr. Buffett has a long standing relationship with CEO of Alleghany, Mr. Buffett has also been following Alleghany for 50+yrs.  I am uncertain if the "best thing for shareholders of Alleghany" was to sell, however if they were going to sell, the only home would be Berkshire.  And that "go-shop" period was a little song and dance, my opinion.  Great buy for Berkshire, shareholders of Alleghany got an okay result.  Better result would have been Berkshire issuing paper however Mr. Buffet ain't giving up any paper right now where Berkshire's valuation.  

[cubsfan]

^^^  Pretty insightful comment. I don't understand your comment on the "go shop" period. Was it clear no one else would be able to bid fairly on Alleghany?  Was it a lock for Berkshire?

[gfp]

My impression was that the go shop period was awfully short to allow an unprepared potential bidder to do what they needed to do to put together a serious bid. Not everyone can spit out a number at lunch and stick with it. Plus the direction of interest rates and the effect on Y’s bond portfolio meant the price/book offered by BRK kept rising. It is very true what Warren says, that Alleghany is worth more in Berkshire‘s hands that it was on its own or to most other buyers.  Plus it was clear that management and major shareholders had already blessed the Berkshire deal so other deals would get labeled “less certain to close” and so forth 

[Spekulatius]

@longterminvestor Thx for the comment. I wasn’t really following this story closely, but it was clear Berkshire had the inside track in this deal. let’s also not forget that this happened in a choppy market, some of Allegheny’s equity holding were affected, so with a fair bid from Berkshire at hand that sure is going to close, it was hard for an outside to make much more compelling bid.

[CassiusKing1]

Didn't Warren say that the Allegheny folks came to him?

In WEB's explanation, Allegheny came to him on a Monday morning and approached him.  He had admired the company and was interested, but did not initiate.

 

Was it last years annual meeting, or an interview where this was disclosed?

[longterminvestor]

Allegheny is alot like Berkshire in many ways - the way its run, decentralized.  It was actually railroad company in the beginning (akin to Berkshire in textiles).  Pivoted to other businesses over time and then found insurance in the the 80's. 

 

Today I am less focused on what Mr. Buffett says (we can pretty much predict what he is gonna say on particular topics), and more on what he choses not to say.  Mr. Buffett does not care about choppy markets - he's thinking in decades.  MY opinion, he (we) stole Allegheny.  1.26X book based on Allegany's position as a stand alone public company, however inside Berkshire its worth way more because as a subsidiary it gains so much more leverage with regulators on admitted capital (can leave bonds and buy equities) and also no longer needs to purchase reinsurance (cheap or expensive, its an expense to the business) to take risks Berkshire already wants to take more risk on.  

 

Go shop period, I mean the message was clear to me.  "Ummmm, dear shareholders Allegheny, our CEO has met with gods gift to insurance and prior boss, ie Berkshire Hathaway and Mr. Buffett, and we have a deal to sell the firm (sorry Goldman Sachs, you don't get a fat fee, Mr. Buffett wrote the deal on a napkin).  We respectfully asked for Berkshire paper and Mr. Buffett promptly rebutted with Benjamin's only - no Berk paper.  Oh and because we are a public company, we owe it to you to find a topping bid - Mr. Buffett graciously gave us less than a month (25 days) to find someone willing to write a check for $12B+ cash not subject to financing and with no adverse change clause.  And even if we do "find someone" to write a check for $12B+ we will probably ignore it because its a short term home for our managers/employees, new owners will load with debt and re-sell to someone else.  With that said, we are patiently waiting by the fax machine for some bids, we will let you know what comes in."

 

Here is a letter that shows Mr. Buffett builds relationships far ahead of when those "seeds" grow into "trees".  Mr. Buffett is credited Mr. Burns with teachings of rail roads in the 2000's.  Mr. Burns did not have the money/ability to act on rails, Mr. Buffett did.  

 

 

[longterminvestor]

15 hours ago, CassiusKing1 said:

Didn't Warren say that the Allegheny folks came to him?

In WEB's explanation, Allegheny came to him on a Monday morning and approached him.  He had admired the company and was interested, but did not initiate.

 

Was it last years annual meeting, or an interview where this was disclosed?

CEO of Allegheny sent Mr. Buffett the annual report.  and Mr. Buffett replied back saying "hey I am in town next week, you wanna have dinner?"

 

Mr. Buffett does not leave Omaha for anybody any more, and he is randomly roaming the North East US?  He knew exactly what he was doing, and it worked swimmingly.   

[giulio]

The benefits of being part of Brk should  accrue to Brk shareholders not Allegheny's IMO. 

If I buy something and am able to improve its results, why should the seller benefit?

 

[ValueMaven]

I wonder if BRK is going to do a rescue deal with SIVB?  Todd ran a financials fund for sometime ... and it would be similar to what they did with Home Capital?  SVB halted pending news (down another -70% premarket) ... 

[rogermunibond]

Berkshire would never buy it outright - would make BRK a bank holding company.

 

Doubt WEB likes the assets either, similar to Bear Stearns or Lehman issues when WEB was asked to bail them out.

[longterminvestor]

10 hours ago, giulio said:

The benefits of being part of Brk should  accrue to Brk shareholders not Allegheny's IMO. 

If I buy something and am able to improve its results, why should the seller benefit?

 

exactly.  you get it.  However management of Allegheny have a "duty to shareholders as a public company to extract the highest value".  and thats why its sooo hard for Mr. Buffett to buy outright public companies.  Private companies don't have that MO (they do but its different).  

[Spekulatius]

On 3/10/2023 at 8:59 AM, ValueMaven said:

I wonder if BRK is going to do a rescue deal with SIVB?  Todd ran a financials fund for sometime ... and it would be similar to what they did with Home Capital?  SVB halted pending news (down another -70% premarket) ... 

I don’t think Berkshire is going to touch SIVB (too messy, he needs to replace management etc) but I think he might get some phone calls from other bank CEO’s  that want to raise capital quickly. I am sure he is open to preferred deals with equity kickers with the right bank. SCHW might be a good bet.

 

Berkshire not just get money quickly without fuzz, but also the seal of approval from Omaha, which is equally valuable.

Edited March 12, 2023 by Spekulatius

[Fitz]

They had to divest a Bank they loved in Rockford Bank n Trust due to banking regulations limiting what they would have been able to do with the rest of the company. They cannot wholly own a bank and have to sell off their shares when they start to reach 15% interest. BRK filed a petition to allow for his interest to eclipse this threshold if it was due to buybacks alone and wasn't granted the exception. 

[whatstheofficerproblem]

22 hours ago, Spekulatius said:

Berkshire not just get money quickly without fuzz, but also the seal of approval from Omaha, which is equally valuable.

 

True, SCHW I see a probability, SIVB though is highly unlikely, last thing you need is a bunch of VCs and PE guys saying they are indirectly funded by Buffett.

[rogermunibond]

Buffett wasn't out front investing in banks during 2008-2009.  He bought bonds in well run industrials mostly iirc.

 

Even Berkshire can't stop contagion and certainly can't backstop a deposit run.

 

His investment in BAC came much later.  I could see if the BTFP is successful in reducing the bank fear/panic that he steps in with a preferred investment in SCHW or another bank.  But only after the panic phase is over.

 

 

[gfp]

19 hours ago, Fitz said:

 They cannot wholly own a bank and have to sell off their shares when they start to reach 15% interest. BRK filed a petition to allow for his interest to eclipse this threshold if it was due to buybacks alone and wasn't granted the exception. 

 

Not exactly but the gist is correct.  Berkshire was granted permission to have their BAC ownership rise to as high as 24.9%.  They are also permitted to own just shy of 25% of American Express (also a bank holding company) and are currently over 21% if I remember correctly.

[Fitz]

gfp,  I didn't know they got that approval! I guess a quick google search could have solved this...

 

https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-almost-25-percent-bank-of-america-2020-8-1029465456

 

[james22]

Ally Financial gains amid vague Buffett takeover speculation

 

https://archive.ph/ChNwT

[gfp]

50 minutes ago, james22 said:

Ally Financial gains amid vague Buffett takeover speculation

 

https://archive.ph/ChNwT

Ally Financial is a bank.  Not going to happen.  Berkshire will not acquire a bank and is unlikely to go above 10% ownership of Ally Financial.

 

[yesman182]

1 hour ago, gfp said:

Ally Financial is a bank.  Not going to happen.  Berkshire will not acquire a bank and is unlikely to go above 10% ownership of Ally Financial.

 

I agree.

 

I have a dumb questions to play devils advocate. I understand Ally is a bank, but is it a bank because it keeps deposits or because it issues loans. Could Berkshire buy Ally and then sell the online bank and CC business and brokerage business, while retaining the  insurance and loan book and the ability to generate more loans using Berkshires Capital? What would another bank pay for $150 Billion in 90% insured deposits at a time like this?