Berkshire Hathaway - Break it up? - Size is the anchor of performance

[ander]

I thought there would be a discussion about breaking Berkshire Hathaway up, but I didn't find one. I've been a shareholder for almost 20 years. Buffett was asked the question of a break-up at the AGM, but it's not what I would envision. Maybe break up in 2 or 3 different companies with a stock for each -- no tax consequence. Not selling off the pieces. You can have an insurance entity and the related float required to support it / another business with the operating entities (option for a 3rd company with excess capital). Could lead to greater outperformance since size is the anchor of performance.

Thoughts?


https://www.youtube.com/watch?v=3_tYx_wBY2M
AGM - Buffett response

[MarioP]

If you keeps the shares of the 3 you will have the same asset, same cash-flow and more overhead and less flexibility. I can’t see how it will create value. Market price can go up for a moment but as a decade holder it will not matter.

[bizaro86]

If you keeps the shares of the 3 you will have the same asset, same cash-flow and more overhead and less flexibility. I can’t see how it will create value. Market price can go up for a moment but as a decade holder it will not matter.

Spin offs create value all the time, mostly by improving capital allocation across businesses. That hasn't been an issue under WEB. But his time is closer to the end than the start, and BRK is pretty complicated now.

[ander]

If you keeps the shares of the 3 you will have the same asset, same cash-flow and more overhead and less flexibility. I can’t see how it will create value. Market price can go up for a moment but as a decade holder it will not matter.

If you keeps the shares of the 3 you will have the same asset, same cash-flow and more overhead and less flexibility. I can’t see how it will create value. Market price can go up for a moment but as a decade holder it will not matter.

I'm not focused on day they do it re: stock price reaction. I'm looking at what the intrinsic value would be in a decade and would argue the case it would be higher in aggregate. You would have each manager be able to look at smaller investment opportunities. The businesses that Berkshire has acquired they are not trading / disposing -- might just be a yield play. That's if you kept the weight of the 3.

I might want more exposure to the new capital that is deployed over the following 10 years and maybe would weight more heavily towards that entity (for example maybe there is excess capital of $50 B -- or pick your number).

[DooDiligence]

WEB has said if he were working with a smaller capital base, he could provide better returns.

Seems like carving out divisions would give him a chance to prove it.

Spins could easily get rerated by markets.

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Edit: just my unsophisticated, heretical, 2 cents.

[bizaro86]

WEB has said if he were working with a smaller capital base, he could provide better returns.

Seems like carving out divisions would give him a chance to prove it.

Spins could easily get rerated by markets.

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Edit: just my unsophisticated, heretical, 2 cents.

There are tons of businesses inside BRK that would be big enough to stand alone. The energy business and the railroad would both be among the largest in their fields.

[LC]

Two counterpoints:

1- capital allocation is a benefit across the LOBs. There is a benefit for railroads having access to insurance capital, for example
2- he will have to 'unwind' relationships which at his late stage in life (or if ever) he may be unwilling to do. what does his promise of a 'permanent' home really mean, then?

[ERICOPOLY]

Distributing cash is another simple method, but in the past I think he has argued that the shareholders would rather have him manage the cash, or be better off if he did so as opposed to leaving them to make the decisions.  He could make that argument again in the case of spinoffs.

[thepupil]

100% of the membership interests of Burlington Northern Santa Fe, LLC outstanding as of February 21, 2020 is held by National Indemnity Company, a wholly-owned subsidiary of Berkshire Hathaway Inc.

LC, BNSF is 100% owned by National Indemnity (10-K quoted above), and provides capital to the insurance operation; BNSF does not (on my view) benefit. Independent peer, UNP has no problem raising equally cheap debt capital.

[omagh]

Distributing cash is another simple method, but in the past I think he has argued that the shareholders would rather have him manage the cash, or be better off if he did so as opposed to leaving them to make the decisions.  He could make that argument again in the case of spinoffs.

They are distributing cash now through buybacks.  Sopping up some of the undervaluation will gin up the price which is what most folks are really complaining about.  Berkshire is a growth company, but priced like a BV multiple play.