FRI, DEC 15, 2023
Federal prosecutors said to be probing Buffett's billionaire opponent in growing battle over truck stop deal
Cleveland Browns owner Jimmy Haslam, who is fighting a billion-dollar battle with Warren Buffett over their soured truck stop deal, is being investigated by federal prosecutors for what Berkshire Hathaway alleges is an "illicit scheme" to make "massive side payments" to more than 25 top executives at Pilot Travel Centers (PTC).
But Berkshire won't be able to use its accusations as a defense in a trial next month that will weigh the Haslam family's claims Buffett's company improperly used an accounting maneuver that could cost the Haslams as much as $1.2 billion.
Bloomberg and the Associated Press report the probe's existence was disclosed at a court hearing this week by a lawyer for Haslam's Pilot Corp.
In addition, Bloomberg quotes "people familiar with the matter" as saying the investigation is being conducted by prosecutors for the Southern District of New York.
A lawyer for the Haslam family has called Berkshire's allegations "a wild invention."
Cleveland Browns Managing and Principal Partner Jimmy Haslam watches as the team warms up before the game against the Denver Broncos at FirstEnergy Stadium in Cleveland on October 21, 2021. Photo: USA Today Sports | Ken Blaze
As part of a 2017 deal, Berkshire increased its stake in PTC to 80% earlier this year.
The remaining 20% is still held by Pilot Corp., which is controlled by the Haslam family.
Starting in 2024, it has a 60-day window at the beginning of each year in which it can require Berkshire to buy its minority stake at a price pegged to PTC's earnings in the previous year.
The Haslams fired the first shot in October with a lawsuit accusing Berkshire of ignoring their right to block any "accounting change" and adopting a new accounting method at PTC that would "artificially depress" its earnings.
That, they argue, would decrease what Berkshire would have to pay by more than a billion dollars for the remaining 20% if the Haslams exercise their put option next year.
In a countersuit last month, Berkshire accused Jimmy Haslam of, in effect, trying to secretly bribe PTC executives to "favor short-term profits ... over long-term stability and profitability," boosting PTC's 2023 earnings and Berkshire's purchase price.
Berkshire is also accusing PTC's controller of trying to alter financial statements that Berkshire contends would show the Haslams actually set the stage for the new accounting method.
A view inside the Pilot Co. company's headquarters in Knoxville, Tennessee, October 8, 2021. REUTERS/Harrison McClary
The Haslams' suit is scheduled to go to trial early next month in Delaware after a judge granted Pilot's request for an expedited court date.
The judge in the case ruled this week that Berkshire could not use its accusations against Haslam as a defense because the allegations are not closely connected to the family's original claims.
A trial date has not yet been set for Berkshire's countersuit.
In an article detailing the complicated dispute, The Wall Street Journal notes the case "illustrates the difficulty of crafting incentives in complex corporate structures so that everyone is rowing in the same direction."
It quotes a USC law professor as saying, "When you pay out based on a particular year's [earnings], that encourages people to try and load that one year up with as much earnings as possible. And if that comes at the expense of other years, that's not good."
OXY buys seen as endorsement of oil giant's big purchase, but Berkshire didn't help with the financing
In its largest purchases of the stock since this spring, Berkshire Hathaway added almost 10.5 million shares of Occidental Petroleum to its equity portfolio, increasing its stake to 27.1% from 25.9%.
Berkshire's 238.5 million shares are valued at just under $14 billion based on today's close of $58.56. It is the oil giant's largest shareholder.
According to an SEC filing, it spent a total of $588.7 million on purchases made this week on Monday through Wednesday, for an average purchase price of $56.16. (We won't know until early next week if the buying continued yesterday and/or today.)
This week's purchases are being seen as an endorsement of Occidental's nearly $11 billion (excluding debt) deal to buy CrownRock, a privately held energy company that operates in the Permian Basin, even as OXY takes on another $9.1 billion in debt and sells $1.7 billion in common stock to pay for it.
Berkshire may have also been attracted by OXY's lower stock price, which fell to a 52-week low of $55.12 on Tuesday, the day after the deal was announced.
Occidental is also raising its dividend by 22%.
In a CNBC interview, Occidental CEO Vicki Hollub said Berkshire Hathaway was not involved in the financing the deal "because we didn't need them to be."
She confirmed a Bloomberg report (cited by Barron's) that OXY's corporate jet had been to Omaha in late November, but added, "I'm not always there to talk about business. I talk about other things with Warren Buffett.
"He's an amazing person to get the opportunity to speak to, and I feel grateful and fortunate that I am able to go and have those opportunities to speak to him."
Berkshire has chopped HP position by more than half in three months
Berkshire Hathaway's stake in HP dropped to 5.2% as of the end of November following a flurry of selling that has taken it down from 12.1% in mid-September.
A filing early this week shows that Berkshire owned 51.5 million shares of the computer maker as of November 30, a 57% drop from the nearly 121 million shares it held roughly three months ago.
Its remaining position is valued at $1.6 billion based on today's close of $30.78. It is HP's third largest shareholder.
It only started building its position in the first quarter of 2022, when the stock traded between roughly $33 and $40 per share, so it appears to have been a losing investment so far.
If the position falls below 5%, Berkshire won't have to disclose any further sales until mid-February when it reveals the contents of its portfolio as of the end of December.
BUFFETT AND MUNGER AROUND THE INTERNET
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HIGHLIGHTS FROM THE ARCHIVE
Buffett teaches his kids a lesson with a slot machine (2007)
Warren Buffett explains why he put a slot machine on the third floor of the family's house when his children were growing up.
BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Dec. 15, 2023
Berkshire's top holdings of disclosed publicly-traded stocks in the U.S., Japan, and Hong Kong, by market value, based on today's closing prices.
Holdings are as of September 30, 2023 as reported in Berkshire Hathaway’s 13F filing on November 14, 2023, except for:
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
Please send any questions or comments about the newsletter to me at email@example.com. (Sorry, but we don't forward questions or comments to Buffett himself.)
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Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.
-- Alex Crippen, Editor, Warren Buffett Watch
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