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

[ERICOPOLY]

They are distributing cash now through buybacks.

That's not what I meant because it doesn't raise the issue that I mentioned of the shareholder not knowing how to allocate the cash.  I had my head stuck in the past when I remember he had addressed the topic back when dividends were asked for.  But yes, beginning the sentence the way I did was prone to confusion.

My point is that the shareholders similarly wouldn't know what to do with the shares distributed.

[bizaro86]

They are distributing cash now through buybacks.

That's not what I meant because it doesn't raise the issue that I mentioned of the shareholder not knowing how to allocate the cash.  I had my head stuck in the past when I remember he had addressed the topic back when dividends were asked for.  But yes, beginning the sentence the way I did was prone to confusion.

My point is that the shareholders similarly wouldn't know what to do with the shares distributed.

Acknowledging that WEB will never break up his life's work (and he's earned that right, imo), shareholders wouldn't have to do anything if they didn't want to. Exactly like now.

[omagh]

They are distributing cash now through buybacks.

That's not what I meant because it doesn't raise the issue that I mentioned of the shareholder not knowing how to allocate the cash.  I had my head stuck in the past when I remember he had addressed the topic back when dividends were asked for.  But yes, beginning the sentence the way I did was prone to confusion.

My point is that the shareholders similarly wouldn't know what to do with the shares distributed.

Fair point.  Shares distributed would encounter the same issue of the shareholder doing a worse job of cash allocation than BRK.  Spin-off shares could easily get flipped where retention is probably the better option.

On distribution of cash vs buyvacks, Buffett has always leaned to repurchases.  Chris Bloomstran laid out the hierarchy of decisions using DIS as the example:
https://threadreaderapp.com/thread/1322554127298240515.html

[kab60]

I prefer to keep it they way it is with decentralized ops and centralized capital allocation. But he should turn up the buybacks, even at these levels, and I think he will. Berkshire has been undervalued for too long, and the attitude of central banks makes distressed deals less likely. If he turns up the buybacks and gets himself a decent currency, it would hurt less if a wounded elephant came around and he had to issue a bit of equity to bag it.

[DooDiligence]

They are distributing cash now through buybacks.

That's not what I meant because it doesn't raise the issue that I mentioned of the shareholder not knowing how to allocate the cash.  I had my head stuck in the past when I remember he had addressed the topic back when dividends were asked for.  But yes, beginning the sentence the way I did was prone to confusion.

My point is that the shareholders similarly wouldn't know what to do with the shares distributed.

Acknowledging that WEB will never break up his life's work (and he's earned that right, imo), shareholders wouldn't have to do anything if they didn't want to. Exactly like now.

I look at it more like a garden that gets harvested, rather than broken up.

I think shareholders would do much better & like you said, we wouldn’t have to do anything.

How much extra capital would BHE & BNSF have to work with (and could they use it) if they didn’t send it to Omaha to be stuffed into a mattress?

Could Omaha really put up better numbers from a smaller base with insurance as the core operation?

I’d love to own a piece of all 3 entities separately & to get the option of a cash kicker or ownership stake in the other spincos (jewelry / retail, building materials, etc.)

[TREVNI]

They are distributing cash now through buybacks.

That's not what I meant because it doesn't raise the issue that I mentioned of the shareholder not knowing how to allocate the cash.  I had my head stuck in the past when I remember he had addressed the topic back when dividends were asked for.  But yes, beginning the sentence the way I did was prone to confusion.

My point is that the shareholders similarly wouldn't know what to do with the shares distributed.

Acknowledging that WEB will never break up his life's work (and he's earned that right, imo), shareholders wouldn't have to do anything if they didn't want to. Exactly like now.

I look at it more like a garden that gets harvested, rather than broken up.

I think shareholders would do much better & like you said, we wouldn’t have to do anything.

How much extra capital would BHE & BNSF have to work with (and could they use it) if they didn’t send it to Omaha to be stuffed into a mattress?

Could Omaha really put up better numbers from a smaller base with insurance as the core operation?

I’d love to own a piece of all 3 entities separately & to get the option of a cash kicker or ownership stake in the other spincos (jewelry / retail, building materials, etc.)

BHE has never paid a dividend since BRK bought it. BNSF has paid BRK $36.95bn in dividends from 2010-2019. Buffett has said they'd put more to work at BNSF if they could, there's just no place to do it. So no business that has a reasonable prospect of return is starved for capital at BRK.

The short answer to breaking up/spinning off BRK subs is it's a bad idea. No additional cash flow would be created therefore no additional value would be created.

[valueinvesting101]

BHE doesn't pay dividend to the holding company. I think Berkshire invests regularly in it.
BNSF has guaranteed ROE from regulator and hence Berkshire would likely to invest more capital in it rather than take out. Rather both of these businesses were outlined as places to invest incremental cash generated by other businesses.

Berkshire has always operated by buying undervalued companies generating free cash flow (sometimes growing) and then investing those cash flows into other businesses. Over last 20 years they have pivoted to buy whole companies rather than common stock investments.

How would break up be better than current decentralized structure which enables capital allocation across different businesses? Berkshire is bet on capital allocated better internally within company over capital allocation in security market. Current structure allows tax efficient allocation over active management.

[DooDiligence]

I stand corrected.

Can I at least get a rerating by the market on the separate entities?
I mean seriously, you couldn’t build either BNSF or BHE for barely over book.

[bizaro86]

I stand corrected.

Can I at least get a rerating by the market on the separate entities?
I mean seriously, you couldn’t build either BNSF or BHE for barely over book.

I think it would almost certainly re-rate if they broke it up. GEICO would be another candidate that would trade at a higher valuation than the holdco if separated.

[villainx]

I forgot where but I heard other railroad companies have been more efficient than BNSF.  Maybe there's some mismanagement or complacency within BRK?