FRI, JAN 05, 2024
Haslam vs. Buffett goes to court: The long and the short of it
The Haslam family's billion-dollar complaint against Berkshire Hathaway is scheduled to go to court this coming Monday morning for a two-day trial.
Arguments are set to begin in 'Pilot v. Abel' at 9:15 am ET in what's described as the "big ceremonial courtroom" at Delaware's Court of Chancery in Wilmington, which specializes in legal conflicts among the many businesses incorporated in the state.
It's a complicated case.
Short version: the Haslams, founders of a truck stop chain, are accusing Berkshire of improperly changing the accounting at the company after it took control with an 80% stake so that it could save around a billion dollars if it is required to buy the remaining 20% from the family.
Longer version: in 2017, Berkshire paid almost $2.8 billion to buy 38.6% of Pilot Travel Centers (PTC), a chain of more than 750 truck stops in the U.S. and Canada that does business as Pilot Flying J.
The seller was Pilot Corporation, founded by James "Jim" Haslam II, which opened its first truck stop in 1981.
As part of that deal, Berkshire agreed to buy an additional 41.4% of PTC in 2023, giving it a controlling 80% interest.
The original deal also set the 2023 purchase price set at, essentially, 10 times PTC's 2022 earnings, which worked out to approximately $8.2 billion.
Exterior of the Williams Justice Center in Wilmington, Delaware, where Monday's trial will be held. July 12, 2021. REUTERS/Jonathan Ernst
In addition, the original deal gives Pilot, representing the Haslam family's remaining 20% interest in PTC, the option to require Berkshire to buy that slice for 10 times PTC's earnings in the previous year.
The "Put Right," as it is referred to in the legal papers, can be exercised during the first 60 days of any year, starting in 2024.
Last October, Pilot filed a suit accusing Berkshire of "applying" what's called "pushdown accounting" to PTC's financial statements after it took control in January 2023.
Pilot says that move "drastically" reduces PTC earnings "and therefore, the purchase price for Pilot's Put Right" by as much as $1.2 billion.
It contends the accounting move was a violation of an earlier agreement that "prohibits PTC from 'select[ing] or changing' [its] accounting policies' ... without Pilot's written consent."
It wants the court to order PTC to reverse the move to pushdown accounting and calculate the Put Right price "based on the same accounting principles" used to determine what Berkshire paid for its additional 41.4% in 2023.
Berkshire counters that the move did not violate the earlier agreement "because applying pushdown accounting for a transaction-specific decision was not selecting or changing an 'accounting policy.'"
It also argues that "PTC chose pushdown accounting while under [Pilot's] control, to benefit [Pilot] by keeping a large compensation expense off PTC's books and thereby increasing what Berkshire paid Pilot for control of PTC."
Pilot's Jimmy Haslam III appears with Warren Buffett in a live CNBC interview on October 3, 2017.
But that's not all.
Berkshire filed a countersuit against Pilot in late November accusing James "Jimmy" Haslam III, Pilot's CEO (and an owner of the Cleveland Browns NFL football team) of secretly offering "bonuses" to senior PTC employees based on how much Berkshire would have to pay if it's forced to buy Pilot's 20%.
That, says Berkshire, creates an incentive for the executives to "favor short-term profits — i.e., [the Haslams'] interests —over long-term stability and profitability — i.e., [Berkshire's] interests."
That suit is not part of next week's trial, although Berkshire may try to bring its accusations into the proceedings over Pilot's objections.
(A Pilot lawyer disclosed during a court hearing last month that Haslam is being investigated by federal prosecutors looking into Berkshire's allegations.)
Both sides are hoping for a decision on Pilot's suit by the end of the month, giving the loser time to file an appeal before this year's Put Right window expires at the end of February.
Berkshire may be playing SiriusXM
Berkshire Hathaway made a small addition to its stakes in the Liberty SiriusXM tracking stocks this week, buying a total of $82 million worth of both the Class A voting shares (LSXMA) and Class C nonvoting shares (LSXMK).
At today's close, its position is worth around $2 billion.
Berkshire also owns $53 million of Sirius XM Holdings (SIRI).
We'll be watching to see if this is the start of a buying spree.
Barron's notes that Liberty plans to combine the stocks later this year by exchanging SIRI shares for the tracking stocks.
As it stands now, the trackers are trading at a 35% discount to what holders could get when the exchange is made, prompting some bullish investors to take advantage of the discrepancy by purchasing the trackers, on the expectation they will rise as the exchange approaches.
Bears, however, think SIRI shares are overvalued due to the small number of shares available, which makes it difficult to borrow shares to sell them short. They think their price will fall after the exchange is made.
BUFFETT AROUND THE INTERNET
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HIGHLIGHTS FROM THE ARCHIVE
Buffett and Haslam do CNBC interview the morning their truck stop deal is announced (2017)
BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Jan. 5, 2024
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.
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-- Alex Crippen, Editor, Warren Buffett Watch
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