Berkshire News Briefs - 6/24/15

Berkshire becomes Heinz's top owner ahead of Kraft merger (Reuters UK)

H.J. Heinz Co said on Thursday that Warren Buffett's Berkshire Hathaway Inc has become its majority shareholder by exercising a warrant ahead of the ketchup maker's planned merger with Kraft Foods Group Inc.

In a regulatory filing, Heinz said Berkshire exercised a warrant to acquire about 46.2 million shares for nearly $462,000 this week.

Heinz said the shares represent about 5.4 percent of its outstanding common stock, and that their issuance gives Berkshire a 52.5 percent overall stake.

Warren Buffett plans $2 billion a year Australian spending spree (Sydney Morning Herald)

Mr Buffett, the head of investment conglomerate Berkshire Hathaway, will use funds from a newly minted deal with Insurance Australia Group to build up equity stakes in other large Australian companies including at least one bank.

One of the globe's most astute investors over five decades, Mr Buffett said the deal announced on Tuesday would deliver a stream of Australian dollars which would be invested locally to avoid currency risk.

BNSF Charging Lower Rates for Most-Modern Crude-by-Rail Cars (Bloomberg)

Burlington Northern Santa Fe LLC, the largest U.S. crude-by-rail carrier, is offering lower rates to lug oil in cars that meet the latest federal specifications issued in May. That means the vast majority of cars riding the rails today, known as DOT-111 and CPC-1232, will cost more to haul.

The new rates are part of a plan by the railroad owned by Warren Buffett’s Berkshire Hathaway Inc. to push older cars off the tracks as regulators scrutinize the industry over a series of high-profile explosions. [...]

Fitch Publishes Report on Berkshire Hathaway's Recent Growth in Commercial Lines Insurance (Business Wire)

In a new special report, Fitch Ratings reviews the recent meaningful expansion by Berkshire Hathaway, Inc. into the U.S. commercial lines insurance market. [...]

BRK has also quietly expanded to become the 10th largest U.S. commercial lines insurer based on 2014 direct premium volume. Fitch's report explores the source of BRK's premium growth, recent underwriting experience of new business, and the sustainability and credit implications of this growth.

Business expansion over the past five years has been significant with commercial lines direct premium expanding by 125% to $5.6 billion through organic growth and targeted acquisitions. Workers compensation insurance has been a key driver of this growth and BRK is now the seventh largest U.S. writer based on 2014 direct written premiums.

Berkshire most exposed to asbestos losses (Business Insurance)

U.S. property/casualty insurers' asbestos reserves were deficient by $5 billion to $12 billion as of year-end 2014, with Berkshire Hathaway Inc. being most exposed, Fitch Ratings Inc. said in a report issued Tuesday. [...]

Berkshire Hathaway has the most asbestos reserves of all companies, with about $14 billion, according to the report. But it has assumed $12 billion of asbestos losses through reinsurance transactions, according to the report.

Berkshire Buying Opportunity (Morningstar)

We continue to be impressed by wide-moat-rated Berkshire Hathaway's ability to generate high-single-digit to double-digit growth in its book value per share, believing it will take some time before the firm finally succumbs to the impediments created by the sheer size and scale of its operations. [...]

With the company currently trading at 83% of our fair value estimate--which is at $252,500 per Class A share or $168 per Class B share--Berkshire is not only one of the best near-term opportunities in the financial-services sector, it's also priced at the best entry point we've seen in quite some time for long-term investors.

Charlie Munger Speech at USC - May 2007 (YouTube - 44 min video)

No time to watch the whole thing? Here's a link to a PDF of notes from the speech.

Berkshire News Briefs - 6/15/15

Buffett’s Berkshire Hathaway Pays $388 Million for Stake in Australia's IAG (Bloomberg)

Berkshire Hathaway Inc., the investment company run by Warren Buffett, will pay A$500 million ($388 million) for a stake in Insurance Australia Group Ltd. and gain exposure to a fifth of its insurance accounts.

The deal will give the company 20 percent of IAG’s insurance premium payments and make it liable to pay 20 percent of claims over an initial 10-year period, IAG said in a regulatory statement Tuesday. The U.S. group will get a 3.7 percent stake via a placement of new shares, the insurer said.

Perceva offers to buy Berkshire Hathaway’s lingerie brands (Financial Times)

Private equity group Perceva has entered into exclusive talks to buy European underwear brands from Warren Buffett’s group Fruit of the Loom as it attempts to tap into the ever-resilient demand of French women for lingerie.

The group has made an all-equity offer to buy the ladies’ lingerie collections of Variance, Lou, Vanity Fair and BestForm, as well as the swimwear brand Cherry Beach, the group said on Thursday.

Berkshire’s Suncor Bet Endorses Long-Term View for CEO Williams (Bloomberg)

[...] Suncor has the highest gross margins among 18 of the world’s largest oil and natural gas producers, four times higher than Exxon’s, data compiled by Bloomberg show. The margins have risen while those of global and Canadian peers declined, according to the data.

Suncor became Berkshire’s biggest oil holding after the company sold all shares in Exxon last year, while increasing its stake in the Calgary-based producer since the second quarter of 2014.

Warren Buffett Admits He’s Tried to Buy More than Suits in China (WSJ MoneyBeat)

Warren Buffett is big on China. At this year’s annual meeting of his Berkshire Hathaway Inc., he called the country’s growth “totally miraculous.” [...]

And if Berkshire’s holdings don’t reflect this appetite for China, it’s not for lack of trying on Mr. Buffett’s part. Last year, Berkshire made a bid on a substantial block of shares in a major Chinese company, but the deal didn’t work out, the billionaire investor said in an interview. He declined to provide a name. He’s looked at other deals too, but nothing has borne fruit yet. [...]

BNSF expects crude-by-rail volumes to grow after price rebound (FuelFix)

A 37 percent rebound in oil prices will boost crude-by-rail shipments as drillers complete more wells and extract more crude that U.S. pipelines don’t have the capacity to handle, Burlington Northern Santa Fe LLC executive chairman Matthew K. Rose said Monday.

BNSF is preparing for a recovery after shipments of crude and petroleum products by rail fell from a record 17,074 cars the week of Dec. 12 to less than 13,000 in March as crude prices fell by more than half. [...]

Falling oil prices have caused BNSF to reconsider a shift from diesel to liquefied natural gas to fuel locomotives, Rose said. Market changes or carbon pricing are needed to make such a switch economic at current conditions, he said.

North America's BNSF to launch new services along Northern corridor route (Railway Technology)

North America's freight transportation company BNSF Railway is planning to launch expedited and standard intermodal services to and from Chicago and Saint Paul, Minnesota to the Pacific Northwest.

The new schedules, which are set to start in September, are in direct response to market demand and a result of the railway's record capital investments along its Northern Corridor route.

Berkshire Hathaway launches human and social service insurance program (Insurance Business America)

Independent agents working with clients in the human and social service industry may now choose from an array of products and programs that includes Berkshire Hathaway Specialty Group.

The carrier announced this week that it had entered into a partnership and underwriting agreement with Irwin Siegel Agency to provide insurance products for organizations in the social services sector, including community action, paratransit, social services and youth services agencies.

Berkshire News Briefs - 6/8/15

The exec who writes Warren Buffett and gets CEOs ousted (NY Post)

New NetJets Chief Executive Adam Johnson just might be the most effective letter writer in the country.

The 44-year-old executive has twice in six years written letters to Warren Buffett, the owner of the fractional jet-ownership company, suggesting that he can the CEO — and twice gotten the billionaire investor to act, The Post has learned.

Johnson was instrumental in not only toppling Jordan Hansell in recent weeks, but also took a lead role in pressuring Buffett’s Berkshire Hathaway in 2009 to replace NetJets founder Richard Santulli, a source with direct knowledge of the situation told The Post. [...]

Two related stories of layoffs at Shaw Industries factories in Alabama and Georgia. Overall, they say they're adding employees, but the changes in their operations are redistributing where those jobs are.

Shaw Industries, Valley Head's largest employer, to cut 160 jobs this summer (AL.com)

DeKalb County will lose 160 jobs when one of its largest employers begins making cuts this summer at its Valley Head plant.

Shaw Industries, a flooring company based in Dalton, Ga., announced today it is reducing its workforce in northeast Alabama, leaving approximately 195 associates in Valley Head following the reduction. [...]

Scruggs said the company has announced $342 million in investments over the last 18 months to grow its hardwood, resilient, carpet tile, extrusion, distribution and recycling operations in the the U.S.

"At full capacity, these expansions will create almost 1,000 jobs throughout the Southeast," he said. "As we continue to grow, we will continually adjust production to match market demands and and to leverage our investments in more advanced technology."

Shaw announces 267 layoffs at Bainbridge plant (Post Searchlight)

In a letter dated June 4, Shaw Industries Group, Inc. informed the City of Bainbridge of an impending mass layoff at the Shaw Plant 70 in Bainbridge.

“This mass layoff will result in approximately 267 employees being permanently laid off,” the letter addressed to Bainbridge Mayor Edward Reynolds reads. [...]

In a press release, the company said that it is “re-aligning” its production processes leading to a downsize of Bainbridge’s facility. [...]

“Shaw Industries Group, Inc. is re-aligning its production capacity to better service its customers. Over the past months, we have increased capacity at our fiber extrusion facilities in North Georgia and South Carolina to take advantage of technology investments that we have made in these facilities,” according to the release.

Renewable Energy In U.S. Heartland: How States Make It Work (Clean Technica)

Traditional investor-owned electric utilities rely on a guaranteed return on equity set by electricity regulators. Utilities typically earn this return by investing in generation systems such as coal and gas power plants or solar and wind farms (assets) and selling electricity to recover their investment, plus a return. In Iowa, MidAmerican has gone beyond this model to lower retail costs by selling their excess wind power to the local regional transmission organization. This let them increase the total amount of wind power on the grid and balance overall power generation. This has been so effective that MidAmerican plans to invest another $900 million in wind energy in Iowa, bringing the company’s total wind investment to $6.7 billion. The western Energy Imbalance Market, in turn, may let other Berkshire Hathaway Energy subsidiaries replicate this success. [...]

Five Minutes With…Craig Taylor, head of property, Berkshire Hathaway Specialty Insurance (Insurance Business)

Craig Taylor, head of property, Berkshire Hathaway Specialty Insurance talks about public awareness of the industry, the challenges of the future and the mountains. [...]

Q: What’s the most important thing a broker can do to develop their business?

A: Be in touch with their customers’ industry and identify and respond to the changing environments. The world is changing at a rapid pace, so responding to those changes will create opportunity around added value initiatives whilst still delivering on core competencies. If clients think you’re at the top of the game, they will recommend you to peers.

Winning bid for lunch with Warren Buffett tops $2.3 million (Yahoo/AP)

A Chinese company that develops online games bid more than $2.3 million Friday to win a private lunch with Warren Buffett.

Beijing-based Dalian Zeus Entertainment Co. bid $2,345,678 to win the online auction. The Glide Foundation uses the auction proceeds to help the poor and homeless in San Francisco.

Warren Buffett, Mark Cuban get 'Entourage' movie cameos (CNBC)

The highly anticipated big-screen version of the HBO series "Entourage" hits the big screen this weekend, offering an insider look at the business of Hollywood. [...]

Berkshire Hathaway Chairman and CEO Warren Buffett appears midway through the film, as he crosses paths with Ari Gold. Buffett's cameo is brief, but he does manage to toss off a few memorable one-liners before zipping off in his golf cart across the Warner Brothers studio backlot.

Berkshire News Briefs - 6/2/15

NetJets replaces CEO amid prolonged labor dispute (Columbus Business Journal)

NetJets Inc. announced Monday the departure of CEO Jordan Hansell and named a replacement to take over immediately.

The Columbus-based private jet company, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc., said Adam Johnson, with the company since 1996, including most recently as president of marketing, sales and owner services, has been named NetJets chairman and CEO. Hansell had been CEO since 2011.

NetJets Shuffle: Costs of Deviations from the Berkshire Model (ValueWalk)

At NetJets, Sokol left behind both his thrifty business model and a successor, Hansell, whom Sokol had recruited from Berkshire's energy business. NetJets' pilots love Santulli and have always lamented his departure. They detest both Sokol and Hansell, and especially their low-cost strategy. After Santulli left, management-labor relations deteriorated steadily [...]

Amid mounting turmoil, in early 2015, two Santulli-era senior executives resigned from NetJets and today the company announced that they are returning to lead NetJets: Adam Johnson, a 20-year company veteran, and Bill Noe, who is also a pilot. Their stated goal is to reengage NetJets' employees in the business and return the company to greatness. In other words, they appear poised to abandon the Sokol business model in favor of Santuilli's original concept.

Warren Buffett wants to cut benefits of his planes’ pilots (NY Post)

(Note that this was published last week, before the leadership change.)

Berkshire Hathaway-owned business-jet operation NetJets is trying to wrangle benefit cuts from its pilots union just as boom times fuel a pilot shortage that could crimp its business. [...]

With the economy on the rebound, wealthy customers have returned to buying shares in NetJets planes in exchange for flying hours. Last year it sold 3,500 NetJets Marquis cards — 1,000 more than expected, the exec said.

Nevertheless, NetJets, which almost collapsed during the downturn when CEOs cut back on private-jet travel, said it has to trim costs to meet Berkshire’s demands for greater returns.

BNSF plans temporary layoffs with slipping freight demand (Tulsa World)

BNSF Railway Co. says it’s planning employee furloughs due to slipping freight shipping demand across its rail network.

The company said Wednesday in a statement that it hopes to call back employees “as soon as business needs change.”

The railroad would not say how many employees were being furloughed but that they are “at different locations across our network.”

Kraft Heinz Turns Into A Hedge Fund Favorite As Buffett And 3G Mix Ketchup With Macaroni (Forbes)

Although analysts have a big appetite for synergy loaded deals like Berkshire and 3G’s latest M&A foray, they question whether the company’s lack of organic and natural foods, and its exposure to salty, sugary and fatty goods will prove a roadblock for growth no matter how successful 3G is in cutting costs. Other possible headwinds include dealing with refrigerated foods, technical issues from supply chain changes, and volatile global currencies, issues that have so-far weighed on Heinz sales.

Citigroup analysts, however, see an ability for Kraft to generate new sales as it takes back trademarks it’s licensed out to Mondelez over the two-to-10-years. Heinz’s existing infrastructure in Europe, Brazil and Asia, meanwhile, could help increase the penetration of Kraft brands. Were one to assume 3G’s guidance on synergies is credible, Kraft Heinz also doesn’t look overly expensive when compared against industry competitors.

Las Vegas Casinos Challenging Warren Buffett's Energy Company (Fool)

But the energy industry might be changing faster than Buffett realizes, and Berkshire Hathaway's $10 billion takeover of Nevada utility NV Energy two years ago could show just how problematic the business is today. He's not being challenged by environmentalists or fossil fuel prices; instead, it's casinos on the Las Vegas Strip, NV Energy's biggest customers, that are threatening to leave the utility and find their energy elsewhere.

It takes a lot of power to run a Las Vegas casino. MGM Resorts alone accounts for about 5% of NV Energy's electricity delivered, and that's from just 12 properties. Add in Wynn Resorts, Las Vegas Sands, and data center company Switch, and NV Energy relies on just four customers for about 10% of its demand each year. All the more problematic is the fact that; all four companies want to leave the utility.

Berkshire Hathaway Energy advances utility legislation despite Cantwell pushback (E&E Publishing)

Berkshire Hathaway Energy appears to be successfully pushing legislative language through both chambers of Congress that would scrap federal requirements for utilities to buy power from small renewable and cogeneration units.

But Warren Buffett's multinational conglomerate will have an uphill battle getting that language past the Senate Energy and Natural Resources Committee's top Democrat, Maria Cantwell of Washington.

Cantwell has made clear she plans to work against Berkshire Hathaway Energy's (BHE) proposal, which she said amounts to an attempt by the company to bolster its position in the Western coal markets, where it owns both rail lines and generators. [...]

Richline to Unveil Smart Jewelry Designs and Partnerships at JCK (BusinessWire)

Richline Brands is set to introduce its highly anticipated foray into the world of wearable technology with an array of smart jewelry offerings at the JCK trade show in Las Vegas. [...]

Buffett Auction Draws $1 Million Bid, Exceeding 2014 Pace (Bloomberg)

Warren Buffett’s annual lunch auction drew a top offer of more than $1 million in the charity event’s first full day, exceeding the pace of last year’s bidding.

The annual charity event, now in its 16th year, started Sunday evening and concludes Friday. The highest offer was $1,000,100 as of 10:46 a.m. Monday in San Francisco, according to Ebay Inc.’s website. [...]

Buffett, 84, has raised $17.8 million for San Francisco’s Glide Foundation by offering admirers an avenue to get face time with him. Glide, which offers free meals, affordable housing and counseling for the poor, is led by the Rev. Cecil Williams, 85.

Origins of a Buffett and Mark Cuban sighting in midtown Omaha (Omaha World Herald)

“Someone just gave me Warren Buffett’s email,” Cuban had replied. “I’m going to email him and see if he’ll meet with me. I really want to talk with Warren Buffett.”

So there they were, Buffett in a nice suit and Cuban in a polo shirt, waiting for a driver to do a U-turn on Farnam Street to pick them up for a trip to the Dairy Queen [...]