DaVita Thesis?

[twacowfca]

damn it, in the middle of building a position

 

http://www.bloomberg.com/news/2013-11-22/davita-spared-as-medicare-wipes-out-9-4-dialysis-cut.html?cmpid=yhoo

 

We lucked out on this development. Put our spare cash into it a couple of weeks ago, adding to our large position, after Weschler bought a significant amount for his children, and we actually went into margin in anticipation of receiving the LRE dividend next month, something we almost never do. It's now our second largest holding.

 

I've got mixed feelings about the bump up in price, though.  The lower the price, the more likely a BRK take out. In a way, I'm a little disappointed because DaVita will likely now keep pace with the market leaders, making a takeout increasingly unlikely as the gap between IV and MV narrows.

[hyten1]

nice, i share your sentiments. i am trying to build a position, now it just makes it harder.

 

i honestly am not sure if brk won't take it out even at a higher price. they have bought it at a higher price. (assming brk wants to take it out)

 

hy

 

 

 

damn it, in the middle of building a position

 

http://www.bloomberg.com/news/2013-11-22/davita-spared-as-medicare-wipes-out-9-4-dialysis-cut.html?cmpid=yhoo

 

We lucked out on this development. Put our spare cash into it a couple of weeks ago, adding to our large position, after Weschler bought a significant amount for his children, and we actually went into margin in anticipation of receiving the LRE dividend next month, something we almost never do. It's now our second largest holding.

 

I've got mixed feelings about the bump up in price, though.  The lower the price, the more likely a BRK take out. In a way, I'm a little disappointed because DaVita will likely now keep pace with the market leaders, making a takeout increasingly unlikely as the gap between IV and MV narrows.

[twacowfca]

nice, i share your sentiments. i am trying to build a position, now it just makes it harder.

 

i honestly am not sure if brk won't take it out even at a higher price. they have bought it at a higher price. (assming brk wants to take it out)

 

hy

 

 

 

damn it, in the middle of building a position

 

http://www.bloomberg.com/news/2013-11-22/davita-spared-as-medicare-wipes-out-9-4-dialysis-cut.html?cmpid=yhoo

 

We lucked out on this development. Put our spare cash into it a couple of weeks ago, adding to our large position, after Weschler bought a significant amount for his children, and we actually went into margin in anticipation of receiving the LRE dividend next month, something we almost never do. It's now our second largest holding.

 

I've got mixed feelings about the bump up in price, though.  The lower the price, the more likely a BRK take out. In a way, I'm a little disappointed because DaVita will likely now keep pace with the market leaders, making a takeout increasingly unlikely as the gap between IV and MV narrows.

 

Yeah, I think they would offer north of $75/SH, perhaps north of $80/SH , allowing for this not entirely unexpected development, but their offer has to be significantly more than the market price or shareholders will squawk about getting a bum deal. That's the downside of a rising price. There could be worse problems, however.  :)

[blainehodder]

A BRK takeout seems unlikely precisely because Weschler and his family own for their own accounts. If you want a sign of impending takeout.... Look for them selling out, not buying in.

 

It doesn't make sense that Buffett or Weschler would be seen front running Berk since the Sokol incident. I'm a little surprised Buffett has allowed these positions at all. As it is, don't these positions open up BRK or Ted to lawsuits? A buyout could be seen as a direct transfer of BRK wealth to the Weschlers.

[twacowfca]

A BRK takeout seems unlikely precisely because Weschler and his family own for their own accounts. If you want a sign of impending takeout.... Look for them selling out, not buying in.

 

It doesn't make sense that Buffett or Weschler would be seen front running Berk since the Sokol incident. I'm a little surprised Buffett has allowed these positions at all. As it is, don't these positions open up BRK or Ted to lawsuits? A buyout could be seen as a direct transfer of BRK wealth to the Weschlers.

 

My opinion on every point raised is exactly the opposite.

 

There's nothing wrong with

Ted's owning the stock if his position is well established and  disclosed in advance of making purchases for BRK. Weschler is a long term holder of DaVita. Sokol reportedly talked to Lubrizol to see if they would be interested in an acquisition by BRK and then first bought Lubrizol for his own account just before pitching the deal to Warren. That's the essence of front running.

 

Weschler and related accounts of family members  that Weschler controls or has joint control over are now treated as a group with Berkshire for reporting, apparently having gained an SEC exemption from quick reporting  because they have waived their right to vote any additional shares purchased in favor of a change of control that management does not approve.

 

The ethics and dynamics now is like two partners who both like owning a stock and both keep buying it as BRK and the Weschler family have done recently.  Later, if one partner wants to buy the whole company,including the interest of the other, that's OK.  Actually, it's better than OK. That would be great because Weschler might then be able to roll his large DaVita holding into BRK if the deal is like the BNSF deal.  Then, there would be good alignment of his interest with BRK as a substantial shareholder of BRK, without the perception that his interests are different.

 

That's one more incentive to get a deal done.  :)

[racemize]

A BRK takeout seems unlikely precisely because Weschler and his family own for their own accounts. If you want a sign of impending takeout.... Look for them selling out, not buying in.

 

It doesn't make sense that Buffett or Weschler would be seen front running Berk since the Sokol incident. I'm a little surprised Buffett has allowed these positions at all. As it is, don't these positions open up BRK or Ted to lawsuits? A buyout could be seen as a direct transfer of BRK wealth to the Weschlers.

 

wasn't the main issue that Sokol didn't disclose it?  Also, Weschler has owned this for almost a decade in various vehicles, so it seems a bit different than front running.

[Drokos]

It does make me question Ted's judgement, especially so recent after the Sokol incident. I think he should be going out of his way to avoid any actions that can even be seen as potentially unethical.

 

Why would he buy DVA for his kids and even have the perception of front-running? Why not just buy BRK? He's got plenty of money, he doesn't need to chase extra pennies at the expense of reputation.

[ItsAValueTrap]

Or maybe Berkshire Hathaway front run his trades...

[twacowfca]

It does make me question Ted's judgement, especially so recent after the Sokol incident. I think he should be going out of his way to avoid any actions that can even be seen as potentially unethical.

 

Why would he buy DVA for his kids and even have the perception of front-running? Why not just buy BRK? He's got plenty of money, he doesn't need to chase extra pennies at the expense of reputation.

 

He has a huge deferred tax liability on his DaVita holding. An acquisition of DaVita by BRK would allow him to roll his DaVita holding into BRK without having to pay taxes on the appreciation of those shares if the deal is structured like the BNSF deal.  Time will tell if it works out that way.

 

To repeat: as a member of a group that has signed a standstill agreement that allows them to buy more shares, the members are not front running if they continue to buy shares. It is common knowledge that standstill agreements are often precursors to an acquisition. Therefore, rather than front running, what Buffett and Weschler are doing is the opposite. They are strongly suggesting that they would be open to acquiring DaVita if they could come to agreement with DaVita's management .

[thefatbaboon]

Any thoughts on the deterioration in the HCP business?  Operating flat is flat this year, even with various small tucking acquisitions, and next year they are projecting a 20% decline. 

 

Also, as far as I can tell, regarding the dialysis business, CMS has just taken the 12% downward adjustment and said that instead of slapping it all on next year, they'll simply stretch it out.  So, 2014 nets to 0%, 2015 nets to 0% - with the implication that the downward adjustment will completely offset upward inflation adjustments for around 4 years.  I guess the hope is that the industry has won some time to influence Congress but still the ugly number is still out there for the moment, just spread out over the next 4 years instead of all hitting in 2014.

 

I'm midway through researching this industry so any help would be appreciated.

 

twacowfca, you mentioned that Weschler had recently bought shares for his family, but I haven't been able to find this documented.  As far as I can see Weschler, and his kids, have owned these shares for a long time.  Can you point me to what you're looking at?  Thanks

[loganc]

nice, i share your sentiments. i am trying to build a position, now it just makes it harder.

 

i honestly am not sure if brk won't take it out even at a higher price. they have bought it at a higher price. (assming brk wants to take it out)

 

hy

 

 

 

damn it, in the middle of building a position

 

http://www.bloomberg.com/news/2013-11-22/davita-spared-as-medicare-wipes-out-9-4-dialysis-cut.html?cmpid=yhoo

 

We lucked out on this development. Put our spare cash into it a couple of weeks ago, adding to our large position, after Weschler bought a significant amount for his children, and we actually went into margin in anticipation of receiving the LRE dividend next month, something we almost never do. It's now our second largest holding.

 

I've got mixed feelings about the bump up in price, though.  The lower the price, the more likely a BRK take out. In a way, I'm a little disappointed because DaVita will likely now keep pace with the market leaders, making a takeout increasingly unlikely as the gap between IV and MV narrows.

 

Yeah, I think they would offer north of $75/SH, perhaps north of $80/SH , allowing for this not entirely unexpected development, but their offer has to be significantly more than the market price or shareholders will squawk about getting a bum deal. That's the downside of a rising price. There could be worse problems, however.  :)

 

I am doing research on DVA and I don't see a BRK deal as anything close to a remote possibility.  The ongoing and potential legal issues with this company are so messy that I can't see Buffett wanting to pull this one into his "permanent collection."  This isn't to say that I think DVA is a bad investment.  While I have a lot of work to do, I think DVA is a very interesting company but I would not in any way count on a BRK bid to give me an exit. 

[thefatbaboon]

loganc,

 

Buffett bid speculation aside…have you managed to get any good sources on the litigation?  Most of it doesn't bother me except for the big case(s) that are stemming from their joint venture structures.  There is very little detail in the Qs and Ks - and in particular what I'd like to know is whether this issue extends beyond Colorado.  My fear is that if this stems from JV structure, and this JV structure has been used elsewhere, then we might see a few more multi-hundred million dollar charges.  Any info you have on this greatly appreciated.

[twacowfca]

loganc,

 

Buffett bid speculation aside…have you managed to get any good sources on the litigation?  Most of it doesn't bother me except for the big case(s) that are stemming from their joint venture structures.  There is very little detail in the Qs and Ks - and in particular what I'd like to know is whether this issue extends beyond Colorado.  My fear is that if this stems from JV structure, and this JV structure has been used elsewhere, then we might see a few more multi-hundred million dollar charges.  Any info you have on this greatly appreciated.

 

My thoughts on legal issues are more like : "if you don't know jewelry, know your jeweler".  Weschler in a sense owned Fresenius in the 1990's when he worked for and then with WRGrace.  The legal issues then were a degree of magnitude greater than the issues DaVita has faced recently.  Weschler has also owned DaVita for more than a decade.  It appears that any large company that receives payments from the US government will have to put up with changing views of what is and is not acceptable.

 

The current legal issues apparently are not considered serious enough to dissuade Weschler and BRK from continuing to buy DVA.

[thefatbaboon]

That's nice.  But it still might be good to know something about the companies we invest in!

[loganc]

@thefatbaboon I have no sources in terms of the litigation.  I have some contacts in terms of individuals that have sold a kidney care company to Fresenius but have not gotten any information, to date, from these sources about that line of business.  Upon further reflection and reading, I am pretty comfortable with the DVA dialysis business.  On the other hand, while I see an enormous growth opportunity, I do not understand the HCP business. 

 

@twacowfca Would you be willing to provide some thoughts in terms of how you think about the competitive dynamics and growth prospects of HCP?  I still have much to do in terms of understanding this business but you seem to have a strong handle on DVA and your thoughts would likely expedite my efforts.

 

Ultimately, it seems like DVA is quite cheap.  Even if one assumes that HCP is sold at a meaningful discount to the purchase price, it seems that the dialysis business is still undervalued.  While I said that I cannot see a BRK bid for the company, ultimately, it depends on the price.         

[twacowfca]

@thefatbaboon I have no sources in terms of the litigation.  I have some contacts in terms of individuals that have sold a kidney care company to Fresenius but have not gotten any information, to date, from these sources about that line of business.  Upon further reflection and reading, I am pretty comfortable with the DVA dialysis business.  On the other hand, while I see an enormous growth opportunity, I do not understand the HCP business. 

 

@twacowfca Would you be willing to provide some thoughts in terms of how you think about the competitive dynamics and growth prospects of HCP?  I still have much to do in terms of understanding this business but you seem to have a strong handle on DVA and your thoughts would likely expedite my efforts.

 

Ultimately, it seems like DVA is quite cheap.  Even if one assumes that HCP is sold at a meaningful discount to the purchase price, it seems that the dialysis business is still undervalued.  While I said that I cannot see a BRK bid for the company, ultimately, it depends on the price.       

 

Health books is our core line as a book publisher.  Over treatment with no ultimate positive benefit is typically the outcome of our government's throwing money at the healthcare system.  Dialysis is an exception.  Generally, the more treatment by dialysis for kidney failure, the better for the patient.  If donations of kidneys for kidney transplants were a negative option upon death in the US instead of a positive option, that would be even better.

 

Inefficiencies abound in medical care.  Efficient operations as measured by quality and quantity should have a great advantage.  The healthcare sector has had the best returns of any sector for several years.  With obamacare mandating the purchase of Mercedes instead of Chevys, that is unlikely to change anytime soon for efficient providers.

 

An acquisition of DaVita by BRK would be a foot in the door to a profitable sector, but I don't have especial insight into which providers are the best, other than to stay away from businesses that provide obsolescent treatments or treatments that do more harm than good.

[LC]

If donations of kidneys for kidney transplants were a negative option upon death in the US instead of a positive option, that would be even better.

 

I just want to make sure I am not misunderstanding you....do you mean that having kidney donations as the "default" option upon death would be preferable (in which case I wholeheartedly agree).

[SwedishValue]

Webcast from capital markets day: http://edge.media-server.com/m/p/7jrvikcz/lan/en

[twacowfca]

If donations of kidneys for kidney transplants were a negative option upon death in the US instead of a positive option, that would be even better.

 

I just want to make sure I am not misunderstanding you....do you mean that having kidney donations as the "default" option upon death would be preferable (in which case I wholeheartedly agree).

 

yes. :)

[loganc]

Can anyone help me understand what is going on with the Borrowings/Payments on long-term debt, etc. lines in the cash flow statement?  I haven't been able to locate any notes in the filings to help me understand why there are such large numbers here.  I am sorry if this has been explained elsewhere on the board.

 

Thanks.

[Grenville]

Can anyone help me understand what is going on with the Borrowings/Payments on long-term debt, etc. lines in the cash flow statement?  I haven't been able to locate any notes in the filings to help me understand why there are such large numbers here.  I am sorry if this has been explained elsewhere on the board.

 

Thanks.

 

For what it's worth, I had a similar question when I was investigating Davita a while back. I called IR and eventually got a call back and answer. Unfortunately, I don't remember their response and didn't write it down in my notes. I would suggest calling them if someone else on the board doesn't respond with the answer.