Author Topic: What would you do.....  (Read 4091 times)

cubsfan

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Re: What would you do.....
« Reply #10 on: December 11, 2017, 03:38:39 PM »
Direct from the Owner's Manual:

11. You should be fully aware of one attitude Charlie and I share that hurts our financial performance: Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns.........
Nevertheless, gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We would rather have our overall results penalized a bit than engage in that kind of behavior.

IF you are going to pontificate on a breakup of Berkshire - I think it's very unlikely to happen. Warren keeps his promises, and
Howard Buffett, as the keeper of the culture is going to enforce this promise long after Warren has left the scene.




DooDiligence

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Re: What would you do.....
« Reply #11 on: December 11, 2017, 03:49:10 PM »
I can't see how a breakup of Berkshire is even possible. Correct me if I am wrong, but Buffett made a promise to those owners
who sold their business to him - that those businesses would not be sold, that Berkshire would be a permanent home for thier life's work. Isn't that the case?  So unless labor relationships change or the businesses look like unending losses, Berkshire is not going
to sell wholly owned business to make a few extra dollars. I think, even the Owner's Manual published by Buffett, even warns
new investors coming in - that that is the case.

Am I missing something here??

I'm embarrassed to say that I forgot this commitment.

Also forgot the benefits of being owned by BRK:

1. No more SEC filings
2. No more dog & pony shows
3. Former divs getting reinvested in the biz for more advantageous returns
4. ???

OK, I had abstained but now cast my no vote.
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StubbleJumper

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Re: What would you do.....
« Reply #12 on: December 11, 2017, 04:47:31 PM »
I can't see how a breakup of Berkshire is even possible. Correct me if I am wrong, but Buffett made a promise to those owners
who sold their business to him - that those businesses would not be sold, that Berkshire would be a permanent home for thier life's work. Isn't that the case?  So unless labor relationships change or the businesses look like unending losses, Berkshire is not going
to sell wholly owned business to make a few extra dollars. I think, even the Owner's Manual published by Buffett, even warns
new investors coming in - that that is the case.

Am I missing something here??


Sure, that might be true for something like Nebraska Furniture or Borsheims.  But there's nothing that I know of that would prevent a spin of Mid American, BNSF, Dairy Queen, Sees, or many of the other subs.  And, the original owners of the businesses that WEB bought are not spring chickens either, so they'll be croaking too in the not too distant future.  At a certain point, the original family won't have much involvement in the management of their former company.


SJ

cubsfan

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Re: What would you do.....
« Reply #13 on: December 11, 2017, 05:08:27 PM »
Stubble - fair point:

Those distinctions would make an excellent question for the annual meeting. I certainly don't understand it that way, and
it would be good for Buffett to clarify - because he makes no such distinction/exception in the Owner's Manual.

StubbleJumper

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Re: What would you do.....
« Reply #14 on: December 11, 2017, 05:22:02 PM »
Stubble - fair point:

Those distinctions would make an excellent question for the annual meeting. I certainly don't understand it that way, and
it would be good for Buffett to clarify - because he makes no such distinction/exception in the Owner's Manual.


Well, not to put too fine a point on it, but what WEB says is pretty irrelevant.  The next CEO (or two or three CEOs in the future) can simply change the Owners Manual.  AFAIK, there's nothing legally binding about it.  Similarly, I'd be surprised if any of the assurances that Warren extended to previous owners was ever written in a purchase contract -- it was likely a gentlemen's agreement.  He'd be bonkers to make a legally binding promise to never sell an asset.

If a future CEO is somebody of dubious personal integrity, then all bets are off.


SJ

rb

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Re: What would you do.....
« Reply #15 on: December 11, 2017, 06:48:12 PM »
IF you are going to pontificate on a breakup of Berkshire - I think it's very unlikely to happen. Warren keeps his promises, and
Howard Buffett, as the keeper of the culture is going to enforce this promise long after Warren has left the scene.
Cubsfan, I think you're pretty spot on with your posts. Not only will Howard be left behind as the enforcer but a lot of shares will be in the hands of various foundations. Yes, they have to sell shares and spend the money. But that will take a long time. So they'll be significant shareholders for the foreseeable future. How much do you want to bet that they've received specific instructions on how to vote in the case of a breakup?

On top of all that Berkshire will be a horrible mess to untangle (by design?) with the insurance cos owning operating subs, etc, etc.

Furthermore trying to break up Berkshire can be a career ending event. Berkshire has shitloads of shareholders that don't sell their shares and are patient in collecting their returns/value. These types don't jump up cause the stock might get a pop from a corporate event and may very well be angered by the thought. They may very well lash out at who gets the brilliant idea. Being CEO of Berkshire will be a pretty sweet gig for anyone. Why would one risk that just to try a breakup? I'm pretty sure the CEO's contract will not have a clause where he gets to walk away with $100 million in the event of a breakup as is the case with other companies.

Finally, a breakup would be a value destructive event and thus pretty stupid. Berkshire benefits a lot from the fact that subs can cross-pollinate each other with capital which results in efficient allocation of capital. A lot of capital deployment actually happens at the sub level. Let's take MidAmerican for example. It never paid a dividend to HQ. Is that because Berkshire doesn't like divvies (other subs have strict dividend requirements)? Or is it because MidAmerican had and attractive set of investment opportunities that HQ didn't and thus that money was more valuable in their hands than HQ? Do you then think that MidAmerican would be more valuable as a stand alone entity where it would pay out 60-80% of its earnings or in its current form inside of Berkshire?

John Hjorth

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Re: What would you do.....
« Reply #16 on: December 11, 2017, 07:14:40 PM »
...  Let's take MidAmerican for example. It never paid a dividend to HQ. Is that because Berkshire doesn't like divvies (other subs have strict dividend requirements)? Or is it because MidAmerican had and attractive set of investment opportunities that HQ didn't and thus that money was more valuable in their hands than HQ? Do you then think that MidAmerican would be more valuable as a stand alone entity where it would pay out 60-80% of its earnings or in its current form inside of Berkshire?

No, rb, There are minority shareholders that Berkshire is loyal to, and then there are minority shareholders down in the whole system, that are in the doghouse. Mr. Sokol is one of these.
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longinvestor

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Re: What would you do.....
« Reply #17 on: December 11, 2017, 08:59:49 PM »
Terrific thread. Here's my two cents, probably less.

Buffett owned some 33% of the company before the giving started. As many have pointed out, that ownership lis largely going to the foundations. Buffett made the statement that he used to worry about the breakup some time back but doesn't any more. There's likely covenants etc. In place in the trustees hands. There's another 12 years of his giving away, I think. Imo, the key piece of the puzzle is the stock buyback. They are likely to keep the threshold close to 1.2x and, let's say 15 years from now, the BV is so far off from IV that they raise the threshold to close to 2. Should Berkshire be selling for over2x, well, the breakup artistes disappear, anyway. Buy enough to offset Buffett 's 33%. In the meantime, insiders buy up from the current 10% ownership(read Cunningham).

They'll make it impossible to break Berkshire up. That 'll be one hell of a proxy fight, should someone want to try. I don't think I live to see that day. Too bad.
« Last Edit: December 11, 2017, 09:02:17 PM by longinvestor »

DooDiligence

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Re: What would you do.....
« Reply #18 on: December 12, 2017, 12:06:46 AM »
Stubble - fair point:

Those distinctions would make an excellent question for the annual meeting. I certainly don't understand it that way, and
it would be good for Buffett to clarify - because he makes no such distinction/exception in the Owner's Manual.

Awesome Q to ask & very pertinent in light of succession speculation.

Who's gonna nut up & get in line to ask?

I'd be tempted to show up this year just to watch that (especially if it was someone from COBF!)

And to watch Munger try to beat the crap out of the guy with a gigantic Porterhouse in the parking lot of Gorat's!!!
(this would only happen if the question blindsided him, which I doubt it would...)
« Last Edit: December 12, 2017, 12:09:59 AM by DooDiligence »
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DooDiligence

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Re: What would you do.....
« Reply #19 on: December 12, 2017, 12:15:05 AM »
Terrific thread. Here's my two cents, probably less.

Buffett owned some 33% of the company before the giving started. As many have pointed out, that ownership lis largely going to the foundations. Buffett made the statement that he used to worry about the breakup some time back but doesn't any more. There's likely covenants etc. In place in the trustees hands. There's another 12 years of his giving away, I think. Imo, the key piece of the puzzle is the stock buyback. They are likely to keep the threshold close to 1.2x and, let's say 15 years from now, the BV is so far off from IV that they raise the threshold to close to 2. Should Berkshire be selling for over2x, well, the breakup artistes disappear, anyway. Buy enough to offset Buffett 's 33%. In the meantime, insiders buy up from the current 10% ownership(read Cunningham).

They'll make it impossible to break Berkshire up. That 'll be one hell of a proxy fight, should someone want to try. I don't think I live to see that day. Too bad.

Here's to there being no skeletons for a douche like Singer to get ahold of.
abc | abev | aapl | bbh | brk.b | cvs | dva | dis | ew | ffxdf | gpc | mo | nvo | sftby | vde

7 months left in the BRK.B 1st of the month DCA program (hoping 4 a selloff 2 go all in!)

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https://twitter.com/tunawish