Author Topic: Capital Return  (Read 2359 times)

marazul

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Capital Return
« on: December 02, 2019, 08:26:20 AM »
Cash is fastly approaching the $150bn mark which Buffett has referred in the past as "unjustifiable". If there are no major investments in the next 2 years, Berkshire will just have too much cash. Is there a way for Berkshire to return capital in a tax efficient way for investors? If it is a regular dividend, most investors would get 70 cents on the dollar. Is there a solution for this problem? obviously, besides repurchases. In the past, Buffett has been creative in deferring taxes (e.g. PG-Duracell transaction). I see it unlikely he would just pay the dividend and return 70 cents on the dollar to investors.


gfp

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Re: Capital Return
« Reply #1 on: December 02, 2019, 08:53:57 AM »
beyond repurchases, the only real solution is to make a very large acquisition.  Berkshire can afford to make an all-cash acquisition much larger than most media outlets speculate.  With access to the stock portfolio and extremely attractive bond rates, Berkshire can afford to buy a very large company.  ExxonMobil would not be too large for Berkshire to acquire for cash at this point.

People always speculate that appreciated securities could be spun out tax efficiently, but I do not see that happening.  Assets inside the insurance subsidiaries will likely stay inside the insurance subsidiaries.

Repurchases and acquisitions are the only real solution (apart from additional purchases of marketable securities and OXY-type deals).

scorpioncapital

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Re: Capital Return
« Reply #2 on: December 02, 2019, 09:11:56 AM »
Danaher recently made an interesting transaction. It offered to redeem DHR shares for shares in a division it spun-off. Now some may claim this is offloading a poorer business and redeeming higher quality DHR shares. Not saying Berkshire would do this but it could perhaps do something similar if it wanted to divest of some asset that was not bad - but not great to the public.

Gregmal

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Re: Capital Return
« Reply #3 on: December 02, 2019, 09:12:28 AM »
Dont poke the bear!

And FWIW, if good old reliable VMware was enough to give some fits, mainly it seems because a Barrons author wrote a negative piece or something, no way XOM goes over well....too many risks, in a universe where it seems any risk becomes a justification not to make an investment.

With all the very smart people at Berkshire, I dont see why the dont have a team together who's job is to aggregate a bunch of $1-$20B businesses with synergies and simultaneously make offers to take them all out. Theres just way too many excuses and not a lot of them add up. This company is too small, this is too big, this one is not "Buffett like", this one is too levered, that one is owned by a friend, this one is too controversial....its all bullshit.

Its a selfish, ego driven gambit. Best thing he could do if he trusted his "lieutenants" would be to start spinning out some of their businesses and allocating chunks of the cash to their managers. Let them decide to either roll up smaller competitors/grow the business win a way that the scale could create more value or return it to shareholders.

BG2008

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Re: Capital Return
« Reply #4 on: December 02, 2019, 09:44:35 AM »
Dont poke the bear!

And FWIW, if good old reliable VMware was enough to give some fits, mainly it seems because a Barrons author wrote a negative piece or something, no way XOM goes over well....too many risks, in a universe where it seems any risk becomes a justification not to make an investment.

With all the very smart people at Berkshire, I dont see why the dont have a team together who's job is to aggregate a bunch of $1-$20B businesses with synergies and simultaneously make offers to take them all out. Theres just way too many excuses and not a lot of them add up. This company is too small, this is too big, this one is not "Buffett like", this one is too levered, that one is owned by a friend, this one is too controversial....its all bullshit.

Its a selfish, ego driven gambit. Best thing he could do if he trusted his "lieutenants" would be to start spinning out some of their businesses and allocating chunks of the cash to their managers. Let them decide to either roll up smaller competitors/grow the business win a way that the scale could create more value or return it to shareholders.

He's a collector.  Like an old stuffy guy who collects model trains or Picassos except he collects real railroads etc.  He's not going to split it up.  I'll bet that the 331,000 share price is a reminder that it once traded at $7 or something for that crappy textile company.  Still a great guy and can't thank him enough. 

alpha asset strategies

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Re: Capital Return
« Reply #5 on: December 02, 2019, 10:04:20 AM »
Dont poke the bear!

And FWIW, if good old reliable VMware was enough to give some fits, mainly it seems because a Barrons author wrote a negative piece or something, no way XOM goes over well....too many risks, in a universe where it seems any risk becomes a justification not to make an investment.

With all the very smart people at Berkshire, I dont see why the dont have a team together who's job is to aggregate a bunch of $1-$20B businesses with synergies and simultaneously make offers to take them all out. Theres just way too many excuses and not a lot of them add up. This company is too small, this is too big, this one is not "Buffett like", this one is too levered, that one is owned by a friend, this one is too controversial....its all bullshit.

Its a selfish, ego driven gambit. Best thing he could do if he trusted his "lieutenants" would be to start spinning out some of their businesses and allocating chunks of the cash to their managers. Let them decide to either roll up smaller competitors/grow the business win a way that the scale could create more value or return it to shareholders.

He's a collector.  Like an old stuffy guy who collects model trains or Picassos except he collects real railroads etc.  He's not going to split it up.  I'll bet that the 331,000 share price is a reminder that it once traded at $7 or something for that crappy textile company.  Still a great guy and can't thank him enough.

I think BG2000 "hit the nail on the head"; Buffett is undoubtedly an "empire builder".  As such, he has little desire to shrink the company via spin-offs, stock repurchases, etc.  Investors have obviously seen some nominal share repurchases, but I often wonder just how far the stock would need to fall before Buffett would make some major repurchases (ie. 10%+)?

CassiusKing1

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Re: Capital Return
« Reply #6 on: December 02, 2019, 10:06:13 AM »
Maybe Michael Bloomberg will have to divest himself of the company and Buffett can pick it up in an all cash private deal, lol.

chrispy

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Re: Capital Return
« Reply #7 on: December 02, 2019, 02:34:41 PM »
It seems that a correction of some sort is required before BRK can deploy any of it's cash. Therefore, BRK will also be more cheap.

longinvestor

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Re: Capital Return
« Reply #8 on: December 02, 2019, 02:48:51 PM »
“Just the stuff we have is enough”- Munger in the 50th year letter.

Some day the cash drag will result in the per share earnings growth to trickle down. Well, it has; from the high teens to the low teens.😉


DooDiligence

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Re: Capital Return
« Reply #9 on: December 02, 2019, 03:51:53 PM »
Why not reboot just like he did with the dissolution of the early Buffett partnership?

Then we'd see if he really could rip it up with a smaller capital base.

www.businessinsider.com/why-warren-buffet-closed-down-his-first-fund-2016-9
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