FRI, DEC 02, 2022
Buffett is giving away his Berkshire stock, but not his control
Over the past 16 years, Warren Buffett has given away more than half of his Berkshire Hathaway shares but has kept almost all of his control over the corporation.
This week, Barron's used Buffett's Thanksgiving donations as an opportunity to discuss how Berkshire's share-class structure makes this possible, and how it could prevent a Berkshire breakup after he dies, at least for a while.
The original Class A shares, which closed today at $477,403 per share, count as one vote for the purpose of electing directors and a few other corporate matters.
The Class B shares, which closed at a much more accessible $316.15, were created in 1996 to facilitate Berkshire's acquisition of Burlington Northern Santa Fe. They are economically equal to 1/1,500th of a Class A share.
When it comes to voting power, however, they provide their holders with just 1/10,000th of a Class A vote.
So, when Buffett first started giving stock to the Gates Foundation in 2006, he had an economic stake of 31% but controlled 37% of shareholders' voting power.
Now his economic stake is 15.5% but he has a 31% voting stake.
And Barron's notes that voting power will extend beyond his death, since he has said he intends for shares not already contributed when he dies to be donated "over a dozen or so years."
Andrew Bary writes, "This will give the trustee or trustees overseeing that stock considerable influence over Berkshire for at least several years after Buffett's death."
Buffett thinks Berkshire is better together, but he recognizes that when he dies there will be some who think the pieces of the conglomerate would be more valuable if they were stand-alone companies.
At the 2017 annual meeting, he rejected the suggestion Berkshire's stock would fall if he died because he's been so important to the company's success:
"I think the stock is more likely to go up. If I died tonight, I think the stock would go up tomorrow. And there’d be speculation about breakups and all that sort of thing."
But, as Bary notes, if the trustee or trustees honor Buffett's wishes, they will have the voting power to keep Berkshire in one piece for a time.
And, "At some point in the post-Buffett era, Berkshire might opt to equalize the votes of the A and B shares to prevent any investor from gaining outsize influence by buying up the A stock."
Berkshire plans $856 million yen bond sale
In a prospectus filed late today, Berkshire Hathaway revealed it is offering ¥115 billion of senior unsecured notes. That's around $856 million. It expects them to be issued on Dedcember 8.
They are in six tranches:
- ¥55 billion 0.783% Senior Notes due 2025
- ¥41.5 billion 1.029% Senior Notes due 2027
- ¥1 billion 1.180% Senior Notes due 2029
¥4 billion 1.452% Senior Notes due 2032
- ¥5.1 billion 2.003% Senior Notes due 2042
- ¥8.4 billion 2.368% Senior Notes due 2052
Moody's has given them a Aa2 rating, indicating they are "high quality, subject to low credit risk."
Bloomberg reported last week that Berkshire was talking to investors about a possible sale.
It noted that borrowing costs are very low in Japan because the country's central bank has been stimulating the economy by keeping a key rate below 0% since 2016.
Berkshire may use some or all of the yen it is borrowing to keep increasing its stakes in five of Japan's biggest conglomerates.
A filing last week revealed it now has more than 6% of Mitsubishi Corp., Mitsui & Co., Itochu Corp., Marubeni Corp., and Sumitomo Corp.
When Berkshire first revealed in 2020 it had stakes of more than 5% in the companies, it said they were long-term investments and that they could go as high as 9.9%.
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BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Dec. 2, 2022
Berkshire's top holdings of disclosed publicly-traded U.S. stocks, and BYD, by market value, based on today's closing prices.
Holdings are as of September 30, 2022 as reported in Berkshire Hathaway’s 13F filing on November 14, 2022, except for:
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
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-- Alex Crippen, Editor, Warren Buffett Watch