Berkshire News Briefs - 3/27/15

Buffett's HJ Heinz to merge with Kraft Foods (CNBC)

Kraft Foods Group stock surged Wednesday after the company announced a merger deal with H.J. Heinz financed in part by Warren Buffett. Buffett told CNBC that his Berkshire Hathaway company will have $9.5 billion worth of common stock in the newly merged H.J. Heinz-Kraft Foods company. It will be headed by Heinz Chief Executive Bernardo Hees. [...] Under the terms of the deal, Heinz will return to the public market with a 51 percent ownership of Kraft. Current holders of Kraft stock will own 49 percent of the company.

We'll have $9.5B in new Kraft-Heinz: Buffet (CNBC)

The deal to create the third-largest food and beverage company in the North America—announced hours before Buffett's interview on CNBC's "Squawk Box"—was in the works for about four weeks, the billionaire investor said. "It moved along quite promptly," he said, but stressed he's in it for the long haul. [...] "The short term doesn't make much difference to us, because we will be in this stock forever," Buffett said. "This is a business with us. It's not really a stock. It's a company that we'll own 26 and a fraction percent of."

3G Capital: Warren Buffett's Favorite Partner in Deals Worth Billions (NY Times)

Warren E. Buffett has made a habit of criticizing ruthless Wall Street bankers and rapacious private equity firms over the years. As recently as last month, he railed against both in his annual letter to his shareholders at Berkshire Hathaway. Yet for Mr. Buffett, a genteel billionaire who has managed to put a friendly face on big business, one private equity firm stands apart from the rest. 3G Capital, the Brazilian private equity firm co­founded by the billionaire financier Jorge Paulo Lemann, has in recent years emerged as Mr. Buffett’s preferred business partner in striking multibillion­dollar deals.

Buffett’s ‘German scout’ on the hunt (Omaha World Herald)

Zypora Kupferberg started her own investment business after leaving a larger company because she wanted to be “closer to the customer.” Now the 48-year-old is “Warren Buffett’s German scout,” scanning the European business landscape for businesses Buffett would buy [...] “She knows what we are looking for and we hope we will hear more from her,” Buffett told Handelsblatt.

How Warren Buffett Wins From Bank of America's Capital Plan (Fool)

Warren Buffett has a sizable stake in Bank of America, even if it's hidden from plain view. Berkshire Hathaway owns warrants that entitle it to purchase 700 million Bank of America shares for $7.14 each at any time before 2021. [...] By holding the warrants, Buffett is reducing his downside risk. If he exercised the warrants, Berkshire Hathaway would have $5 billion in additional capital at risk in Bank of America in exchange for only $140 million in incremental dividend income each year. Exercising the warrants gives Berkshire very little upside for a tremendous amount of additional downside.

Nebraska Furniture Mart begins stocking shelves for customers (Dallas Business Journal)

After promises that shelves would begin to be stocked at Nebraska Furniture Mart's new North Texas store in The Colony, work began Wednesday on filling the 560,000-square-foot retail showroom with appliances, furniture and electronics. The retail showroom will anchor the $1.5 billion, 433-acre Grandscape development and is part of the larger 1.9 million-square-foot Nebraska Furniture Mart, which includes a distribution center.

Justin Brands Inc. to close distribution facility, give 68 workers the boot (Dallas Business Journal)

Berkshire Hathaway-owned Justin Brands Inc. will lay off 68 employees and close an entire distribution facility in Forth Worth. [...] However, it may not be the end of the road for the affected workers. Justin Brands plans to turn over its distribution operations to logistics company GENCO, and the employees will have a chance to apply for jobs there. "Justin is just getting out of the distribution business because it's not our core competency," Lisa Albert, Justin Brands' senior communications manager, told the Dallas Business Journal.

Are Oil Refiners Putting Profits Over Safety in Lawsuit Against Buffett's BNSF Railways? (Fool)

(Commentary on this lawsuit, which was originally mentioned in the 3/16 News Briefs post.)

The reality is, this is about both profits and safety, and it looks like both the railways and petrochemical companies are trying to establish the balance of responsibility. And while BNSF's parent stands to benefit from the surcharge and the potential for more updated tanker cars being bought by refiners, that doesn't mean it's not still beneficial to public safety. At the same time, AFPM has an obligation to its members to challenge this surcharge if it feels it is illegal or unfair, and frankly, whether their motivation is the regulatory precedent, or purely the bottom line, really doesn't matter.

North American Railroads Caught by Speed of Crude-Oil Collapse (Bloomberg)

BNSF Railway Co., the railroad owned by Warren Buffett’s Berkshire Hathaway Inc., posted a 4.5 percent drop in petroleum products in the last four weeks after a gain of 12.4 percent last year. BNSF’s network runs through North Dakota, making it the largest hauler of Bakken oil production. [...] Demand for Bakken crude from U.S. East Coast refineries may decline as the price premium for imported Brent crude narrows. It costs about $2 to $3 a barrel to ship Brent by boat while hauling Bakken crude by train adds as much as $14 a barrel [...]

Is This Warren Buffett's Next Cinderella Story? (Fool)

(Commentary on the acquisition of Van Tuyl Automotive. Terrible headline.)

Operating dealers at scale -- in big groups -- has long been a way for local entrepreneurs to turn modest income streams into fortunes. Bigger dealer groups can get more operating efficiencies around everything from financing to employee benefits, lowering costs and helping to boost those thin margins. Buffett clearly sees this business as one where Berkshire's scale and entrepreneurial values can bring more of those kinds of efficiencies. He also sees it as a business likely to endure for many decades.

First trailer rolls out of new manufacturing plant (PE)

With the sounds of drilling, hammering and sawing in the background, the first trailer has rolled out of Forest River’s new Hemet manufacturing plant. [...] Forest River has hired 80 employes, with hopes to more than double that. [...] Forest River Inc., a Berkshire Hathaway company, bought the Hemet plant in December to open its 67th assembly plant in the nation. [...] Miller said Forest River spent more than $1 million to retrofit the two buildings on the 18-acre site [...]

Should I bet it all on Buffett? (CNN Money)

(Beware the auto-playing video)

I don't think it's a good idea to invest too much of your retirement savings into Berkshire. As a rule, it's not wise to concentrate more than 10% or so of your stock holdings in the shares of any single company. Assuming you have an otherwise well-diversified portfolio, I suppose you could make a case for pushing that percentage to 20% or so for a unique company like Berkshire Hathaway. But I wouldn't go beyond that.

Warren Buffett’s most common misunderstood pieces of advice (Omaha World Herald)

With a net worth of about $71 billion, Berkshire Hathaway Chairman and CEO Warren Buffett is undeniably the most successful investor in history. People often ask him for advice, and he is never short of blunt and witty tidbits. But with all of these pieces of investment advice floating around, many of them without additional context, it can be easy for someone to misconstrue his words. So before you rush out and start taking the Oracle of Omaha’s comments to heart, here is a list of his most common misunderstood pieces of advice.

Nutritionists warn diners to be wary of Warren Buffett's 'junk-food' portfolio (Reuters)

Following Warren Buffett's investment advice may be smart but nutritionists say that eating too many of the "junk-food" products made by companies he has invested in isn't quite as wise. His move on Wednesday to inject Velveeta cheese, Jell-O, Lunchables, Oscar Mayer wieners, and Kool-Aid into his portfolio, stuffs an already amply supplied larder. [...] He told Fortune magazine last month that he's talked to the management of Utz, the Pennsylvania-based snack maker, about potentially buying the company. And with Kraft now under his belt, Buffett could decide to literally drink his own Kool-Aid and push ahead with more such acquisitions.

Airbnb contest: Stay at Warren Buffett's childhood home during Berkshire Hathaway meeting (San Jose Mercury News)

Some fortunate Berkshire Hathaway investors at this year's annual meeting will get the chance to sleep in the same bedroom Warren Buffett did as a boy. The home-sharing service Airbnb is offering a free three-night stay at the Omaha home around the May 2 meeting as a way to promote its services. Shareholders who want to stay at the three-bedroom house must submit short essays and prove they own Berkshire stock.

Berkshire News Briefs - 3/16/15

This week's post broke down clearly into BNSF and non-BNSF news, so I broke up the post accordingly.

BNSF News

Berkshire's railroad revamps service with billions, fewer cars (Reuters)

Stung by customer backlash over last winter's patchy service, Berkshire Hathaway's BNSF Railways invested billions in shoring up its operations. But in addition to hiring more than 7,000 new workers and spending $5.5 billion on improvements to its 32,500-mile network, the railway also has done something unexpected: it pulled thousands of rail cars off its lines. The strategy appears to have paid big dividends this winter, helping ease congestion on tracks and speed up traffic [...]

CN Rail, BNSF Tackle Accidents as Group Seeks Ban on Oil Trains (Bloomberg)

The accidents bring to four the number of oil train wrecks in North America in the past three weeks, according to the Center for Biological Diversity. The environment group is calling for a halt to transport of oil by rail, which has surged since 2009 with the boom in crude production from shale. [...] North American oil producers have increased their reliance on rail as new pipelines failed to keep pace with a surge of production from shale. The typical rail car carries about 700 barrels of oil, according to data posted on BNSF’s website. The number of oil carloads rose more than 40-fold from 2009 through 2013, when 435,560 carloads were shipped, and kept climbing last year to an estimated 500,000, according to the Association of American Railroads.

Oil refiners resisting BNSF's surcharge on tank cars (Lincoln Journal Star)

The nation's oil refiners are suing BNSF Railway for adding a $1,000 surcharge to crude oil shipments in standard tank cars, to force shippers to switch to safer jacketed cars that are not yet required by federal regulators and are not yet available, according to the lawsuit. [...]

Judge revives railroad collusion suit against Union Pacific, BNSF (Omaha World Herald)

A judge in U.S. District Court for the District of Columbia ruled late last month that the 2011 suit by the Oxbow group of mining companies — owned by billionaire Bill Koch — can proceed after being dismissed in 2013. The original complaint was dismissed for failing to state sufficient facts. [...] “They allege that U.P. and BNSF engaged in anti-competitive conduct ... that harmed plaintiffs,” U.S. District Judge Paul Friedman wrote in the opinion. “In short, plaintiffs allege that defendants conspired to fix prices above competitive levels through a uniform fuel surcharge and allocate certain markets to each other, granting U.P. a monopoly in at least one region.” Texas-based BNSF said it will “aggressively defend itself” against Oxbow’s complaint.

Everything Else

Buffett Follows ‘Avarice’ Warning by Keeping $100,000 Salary (Bloomberg)

Buffett, 84, stuck with a $100,000 salary in 2014, as he has for decades, his Omaha, Nebraska-based company said in a regulatory filing Friday. On Feb. 28, in his annual letter, he said the next CEO needs to avoid being greedy. [...] The billionaire has also shown a willingness to provide Wall Street-sized compensation to reward growth at operating units such as insurers and the utility subsidiary. Greg Abel, the chairman and CEO of Berkshire Hathaway Energy, was paid $27.6 million in 2014, including an $11.5 million cash bonus and $12 million from an non-equity incentive plan. [...] Chief Financial Officer Marc Hamburg, the only executive whose pay is listed in the proxy other than Buffett or Munger, saw his salary rise about 9 percent to $1.23 million in 2014. [...]

Warren Buffett Just Predicted the Next 50 Years for Berkshire Hathaway (Fool)

Buffett said that the chance of permanent capital loss with Berkshire is the lowest among any single-company investment. But he added a caveat: If the company's valuation is high, say approaching two times book value (it's at about 1.5 times book value now, so not too far off), it could be years before investors realize a profit. In other words, Berkshire has never been, and will never be, a good "traders' stock." The company has one of the most shareholder-friendly business models in the world, but it is geared exclusively toward long-term investors. As a result, Buffett recommends that investors should look elsewhere for investment options if they plan to hold their shares for less than five years.

Berkshire Hathaway completes Van Tuyl acquisition (Automotive News)

Berkshire Hathaway Inc. has completed its purchase of the Van Tuyl Group, the largest dealership acquisition in industry history. All aspects of the sale were finalized Monday, and the company has been renamed Berkshire Hathaway Automotive, headquartered in Dallas. The new Berkshire Hathaway Automotive now is the fifth-largest dealership group in the U.S., based on 2013 new light-vehicle retail sales. It has more than $9 billion in annual revenue, the company says. [...] Jeff Rachor, who had been president of Van Tuyl Group, will be CEO of Berkshire Hathaway Automotive.

33 Amazing Numbers From Bershire Hathaway's Golden Anniversary Shareholder Letter (Fool)

$18.3 billion: Berkshire Hathaway's increase in net worth during 2014. That gain in book value is greater than the book value of more than four-fifths of the companies in the S&P 500. 9 1/2: Number of Berkshire-owned businesses that would be listed on the Fortune 500 if they were independent -- the "1/2" refers to H.J. Heinz, which Berkshire owns with 3G Capital. ("That leaves 490 1/2 fish in the sea. Our lines are out.")

Buffett's $1 billion NCAA bet goes bust (CNN Money)

Don't even think about winning $1 billion picking the perfect NCAA bracket this year. And it's not because the odds of winning are infinitesimal. But because the companies behind the contest are too busy suing each other to organize another one this year. [...] The squabbling started last year when a small sweepstakes company called SCA Promotions sued Yahoo for allegedly backing out of a deal to put on the perfect bracket contest. Yahoo counter sued, alleging that SCA spilled the beans when it went to Berkshire to buy insurance that would pay $1 billion in the unlikely event that someone won the contest. In February, Yahoo sent subpoenas to Berkshire seeking information about its dealings with SCA, including all communication between Buffett and SCA about the contest, according to court documents.

Berkshire News Briefs - 3/7/15

Berkshire Hathaway at 50: Things Have Never Looked Better (Fool)

On Saturday, Warren Buffett released his Golden Anniversary shareholder letter, followed by yesterday's release of Berkshire Hathaway's 2014 annual report. (2015 marks a half-century since Buffett took control of a struggling New England textile business by the name of Berkshire Hathaway.) Mr. Buffett's message is one of optimism, tempered by a dispassionate assessment of the facts: In terms of financial strength, earnings power, and permanence, Berkshire Hathaway appears better positioned than ever -- even as the end of Mr. Buffett's tenure draws ever nearer.

Grading Berkshire after 50 years under Buffett: How does a 1,826,163% stock rise sound? (Fortune)

Here’s another lollapalooza, brought into public view by a quiet change in the report. To the performance table that has always contained only Berkshire’s book value per share and the S&P 500 index, Buffett has added the historical record of Berkshire’s stock price. And there the record is, on the page facing Buffett’s shareholder letter: 50 years of percentage increases and declines in Berkshire’s stock, followed by two summations. For the half-century—for all the years of Buffett’s management—the price grew at a compound annual rate of 21.6%. The gain, overall, was 1,826,163%.

Berkshire Hathaway Wooed by Europe’s Low Borrowing Costs (WSJ)

Warren Buffett ’s Berkshire Hathaway raised €3 billion ($3.3 billion) on Thursday from its first-ever debt sale in Europe. The deal is the latest in a surge of U.S. companies crossing the Atlantic to sell bonds in euros, taking advantage of the region’s slender borrowing costs. Berkshire Hathaway sold three bonds that will mature in eight, 12 and 20 years. Those bonds priced to yield 0.8%, 1.24% and 1.648%, respectively, all close to record lows for those maturities.

6 Quotes From Berkshire Hathaway's Greatest Ever Shareholder Letter (Fool)

Will the "Berkshire system" ensure continued success, despite its size, and after Buffett? Buffett says yes: "Despite our conservatism, I think we will be able every year to build the underlying per-share earning power of Berkshire. That does not mean operating earnings will increase each year -- far from it. The U.S. economy will ebb and flow -- though mostly flow -- and when it weakens, so will our current earnings. But we will continue to achieve organic gains, make bolt-on acquisitions, and enter new fields. I believe, therefore, that Berkshire will annually add to its underlying earning power."

BNSF oil train derails in rural Illinois; two cars aflame (Reuters)

A BNSF Railway train loaded with crude oil derailed and caught fire on Thursday afternoon in a rural area south of Galena, Illinois, according to local officials and the company. [...] Dark smoke was seen for miles around the crash site, and the Illinois Environmental Protection Agency told local WREX.com that two of the cars were potentially on fire. The train with 105 loaded cars - 103 of them carrying crude oil - derailed around 1:20 p.m. CST (1920 GMT), according to a BNSF statement. The incident occurred on what appears to be a major rail line alongside the Mississippi River that handles as many as 50 oil-trains a week, one official said.

Why Warren Buffett Is Worth $72 Billion and You’re Not: Two Theories on Berkshire Hathaway (NY Times)

Academics who study corporate finance overwhelmingly believe that conglomerates — giant companies that operate in a wide range of industries, often built through acquisitions — are an awfully inefficient way to organize businesses. And one of the most successful American companies of the last 50 years is a conglomerate called Berkshire Hathaway, run by the renowned investor Warren Buffett, which is the fourth-most valuable firm in the United States, behind Apple, Google and Exxon Mobil. It employs 340,000 people, roughly the population of Honolulu.

Understanding Succession at Berkshire Hathaway After Buffett (NY Times DealBook)

Today, Berkshire’s succession plan envisions investments run by several portfolio managers, likely including two hired in recent years, Todd Coombs and Ted Weschler. On the executive side, Mr. Buffett’s replacement is to come from among top managers of Berkshire’s many subsidiaries. Berkshire followers speculate on succession at the top, with several names mentioned often—especially Greg Abel of Berkshire Hathaway Energy and Ajit Jain of Berkshire Reinsurance—and another dozen capable candidates, making for a deep bench of chief executives. But a question often overlooked by outsiders is who will assume Mr. Munger’s role. [...]

A Closer Look at Berkshire Hathaway’s Insurance Operations (Insurance Journal)

Insurance operations contributed $5.2 billion to total operating income of $16.6 billion for Berkshire Hathaway in 2014—with the underwriting component of $1.7 billion (after taxes) representing the 12th straight insurance underwriting profit for the Nebraska-based conglomerate. “Our underwriting profit totaled $24 billion during the twelve-year period, including $2.7 billion earned in 2014,” wrote Berkshire’s Chair Warren Buffett in the company’s annual report released last Saturday, referring to the pretax underwriting profit for all insurance operations. “And all of this began with our 1967 purchase of National Indemnity for $8.6 million,” Buffett wrote in his annual letter [...]

The Fate of the Berkshire Mill (WSJ)

They paved a capitalist paradise and put up a parking lot. Okay, maybe “paradise” is overselling it a bit. Maybe we just wanted to reference the Joni Mitchell song. But the fact remains: The building in New Bedford, Mass. that once served as the headquarters of the old Berkshire Hathaway Inc. textile mill was torn down last year, and a parking lot was put in its place. [...] But the fact is, large parts of the original Berkshire mill complex remain. The headquarters building was taken down to build more parking for the other commercial buildings, where Mr. Letendre rents out space to roughly 20 tenants and runs his own company [...] Those remaining buildings represent the majority of the square footage that Mr. Letendre acquired when he purchased the mill from Berkshire in 2000 for $215,000.