The Case for Partial Spinoffs

[CanadianMunger]

“The plan to create a publicly listed operating group made up of Topicus and TSS was a key part of our discussions with the Topicus founders. They didn’t want their legacy disappearing into the craw of an omnivorous conglomerate.  While they knew that Topicus would have autonomy within Constellation, they also wanted identity. The public listing is expected to afford our Netherlands-based businesses a platform from which to celebrate their culture and achievements.”

 

Why shouldn't Berkshire follow Constellation Software's lead by partially spinning off stakes in their major businesses?

 

I re-read the 2019 annual this week (nearly all of it) in preparation for the release this weekend of the 2020 report.  Nearly all of their non-insurance businesses with the exception of BHE have been pretty stagnant for a long time.  What is their motivation to improve?  A pat on the back from Buffett and Abel?  What happens post WEB? 

 

At least when you have a public quotation their is some real feedback on how you are performing (or perceived to be performing), rather than being buried in some huge conglomerate.  Look at PCC, their last major acquisition - it was a poor performer pre-covid and looks to be a train wreck.  If it was publicly quoted, there would be some real time feedback on how they are performing.  Conversely if a portion of GEICO was public over the past few decades it would have reinforced how well they have done.  Humans respond to information (market quotes).

 

Berkshire could still own a majority stake and of course consolidate results.

 

I'm surprised that with all their expertise on incentives and psychology that WEB & CM have not tried this.  I suppose on one level it would be an admission that the conglomerate structure is not always optimal.  Mark Leonard has spoken on identity being lost the more an organization grows.

 

"I'm an old dog, but I'm certain that they have new tricks to teach me" - Mark Leonard

 

Will Berkshire eventually learn some new tricks?

 

-CM

 

 

 

 

 

 

[valueinvesting101]

Buybacks are better than partial spinoffs especially when company holds excess cash.

 

Lot of listed companies languish in performance so hardly an argument for motivation.

 

Humans do respond to information (market quote) as evident from rising media coverage and price of GME, Bitcoin...Do human generate returns (alpha) from this information?

[CanadianMunger]

Buybacks are better than partial spinoffs especially when company holds excess cash.

 

Lot of listed companies languish in performance so hardly an argument for motivation.

 

Humans do respond to information (market quote) as evident from rising media coverage and price of GME, Bitcoin...Do human generate returns (alpha) from this information?

 

Disagree with all of this.  Nothing further to add.

 

-CM