Business | Investment
Buffett plans to go on buying spree
Berkshire Hathaway chairman Warren Buffett, who has used dozens of acquisitions to beat every major US stock index, is poised to extend his lead with more than $40 billion to spend as the credit crunch sidetracks other bidders.
- Bloomberg
- Published: 00:05 May 3, 2008
New York : Berkshire Hathaway chairman Warren Buffett, who has used dozens of acquisitions to beat every major US stock index, is poised to extend his lead with more than $40 billion to spend as the credit crunch sidetracks other bidders.
With the US on the brink of recession, investors expect Buffett to deploy Berkshire's cash to scoop up bargains. Berkshire rose 22 per cent in New York trading in the past 12 months as the worst housing slump in a quarter century slowed the economy, led to record losses for banks and securities firms and caused the Standard & Poor's 500 Index to decline 6.8 per cent.
The shares gained at an annual rate of 19.5 per cent during the past two decades, outpacing the S&P 500's 11 per cent advance.
"Buffett has got the liquidity that others are lacking," said Mohnish Pabrai, founder of Irvine, California-based Pabrai Investment Funds, who manages $600 million and holds Berkshire shares. "The disruptions work in his favour. This is a perfect market for Berkshire."
The 77-year-old Buffett transformed Omaha, Nebraska-based Berkshire from a failing textile maker in the 1960s into a $200 billion company by taking insurance premiums and investing them in stocks and companies. He owns about 33 per cent of Berkshire, making him the world's richest person ahead of Microsoft co-founder Bill Gates, Forbes magazine reported in March.
Berkshire was expected to reveal later yesterday that first-quarter earnings declined because of lower profits from underwriting insurance, according to two analysts who track the company. Berkshire relies on insurance units, including Geico and General Re, for about half of its profit.
Berkshire faces a probe by Connecticut Attorney General Richard Blumenthal for possible conflicts created by owning almost 20 per cent of credit ratings company Moody's while also running a new municipal bond insurer.
Shareholders' meeting
Buffett holds his annual shareholders' meeting tomorrow and on Sunday, with about 27,000 investors from every continent except Antarctica gathering in Omaha. They will pack the city's Qwest centre to hear Buffett and Berkshire vice-chairman Charles Munger, 84, answer questions and talk about their plans.
Companies that Buffett has been scooping up will add significantly to Berkshire's earnings, and are not fully reflected in the share price, Pabrai said.
On the day Buffett won control of Berkshire Hathaway in 1965, the stock closed at $18 a share. Berkshire's Class A shares closed Thursday at $133.90 in New York Stock Exchange composite trading. Buffett has never split the shares.
Buffett spent $4.5 billion last month for a 60 per cent stake in the Pritzker family's Marmon Holdings. He committed $6.5 billion last week to help finance Mars' takeover of Wm Wrigley Jr, the world's biggest maker of chewing gum. The deal includes $2.1 billion for a minority holding in Chicago-based Wrigley that Berkshire will get at an unspecified discount.
"This is his market," Pabrai said. "We saw it with Wrigley," when no private-equity firms or banks stepped up to compete with Berkshire, he said.
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