Berkshire News Briefs - 8/28/15

This week, 90% of the news I saw about Berkshire Hathaway fit into three categories:

1. Slower news outlets and blogs covering last week's announced purchase of Precision Castparts.
2. The stock market dip earlier this week caused Warren Buffett to lose a lot of money.
3. Comparisons between Berkshire Hathaway and Google... errr... Alphabet.

But there were a few interesting other news bits:

Geico to pay $6M to settle Calif. insurance bias charges (St. Louis Post-Dispatch)

Geico, the auto insurance unit of Warren Buffett's Berkshire Hathaway Inc, agreed to pay $6 million to settle charges it discriminated based on gender, education level and occupation when quoting rates online, the California Department of Insurance said on Monday.

The settlement lasts three years and resolves claims first raised by the Consumer Federation of California against Geico, which insures more than 22 million vehicles.

Geico was accused of targeting women, people with low incomes and people not working in professional or executive jobs with deceptive and inflated rate quotations, while offering better terms to drivers it considered more desirable. [...]

DQ Bakes is Dairy Queen's largest-ever menu expansion (Minneapolis Star Tribune)

Look for a raft of Dairy Queen TV ads next month for the Turkey BLT, Triple Chocolate Brownie a la Mode and more items from the new DQ Bakes menu.

Dairy Queen says it’s the restaurant chain’s largest-ever menu boost, aimed at bolstering its appeal as a food destination, while fortifying its stronghold in sweet treats.

Dairy Queen’s franchisees nationwide are installing oven systems — a big investment — to make DQ Bakes. And the Edina-based chain is for the first time doing year-round advertising to burnish a brand that turned 75 this year. [...]

While Berkshire is publicly traded, it doesn’t include Dairy Queen’s results in its financial reports. Gainor said that Dairy Queen’s stores together do $4.1 billion in annual sales. The company’s massively popular Blizzard makes up about 36 percent of that tally.

The chain’s same-store sales growth, a key restaurant financial gauge, has been in the high single digits in the past year or so, and in the mid-single digits on average since the 2009 recession, Gainor said. [...]

Shaw to make more carpet from recycled PET (Plastics News)

Shaw Industries Group Inc. plans to spend tens of millions of dollars at a South Carolina carpet fiber plant to increase the use of fiber from recycled plastics.

The world’s largest carpet maker, based in Dalton, Ga., is planning new polyester extrusion operations that will include the use of recycled PET beverage containers. The company also will add nylon fiber capacity. [...]

The $45 million project will create more than 50 new jobs at the facility, which already employs 290, the company said. Across South Carolina, Shaw has seven plants and more than 1,500 workers. [...]

S&P: Reinsurance M&A Will Be Driven by Berkshire Hathaway Model (Insurance Journal)

“We have seen an increased interest by investors to emulate the Berkshire Hathaway Inc. business model,” S&P said in its report. “Through their investment holding companies, they are acquiring [insurer/reinsurers] with strong operating cash flows that will be upstreamed to the parent company. This buy now and pay later [insurance/reinsurance] model generates cash flows, or “float” that these [Berkshire Hathaway] copycats invest.” [...]

The Berkshire Hathaway “business model is hard to duplicate and it is becoming a crowded trade in an already saturated reinsurance market,” the ratings agency said. “We expect more similar deals to come to the market during the next 12 months, which will likely continue to put pressure on reinsurance pricing given these holding companies’ lower cost of capital relative to stand-alone, publicly traded reinsurers.”

Burger King peace offer to McDonald's: 'Let's make a McWhopper' (Business Insider)

In the name of global peace, Burger King proposed making the hybrid hamburger to its rival McDonald's on Wednesday, at least for one day, the United Nations-promoted International Day of Peace on Sept. 21.

Burger King, perpetually locked in tough competition with the larger but less profitable McDonald's, delivered the olive branch via a full-page advertisement in The New York Times, saying it is time to "call a ceasefire on these so-called burger wars." [...]

Behind the scene in the campaign is some of the financial power of Burger King's part-owner, Berkshire Hathaway head Warren Buffett.

Peace One Day is strongly backed by the charitable foundation of the tycoon's son Howard Buffett, who is a director of Berkshire Hathaway and possible successor to his father as chairman.

Berkshire News Briefs - 8/21/15

This was 13F week, where Berkshire Hathaway submits its portfolio changes to the SEC each quarter. As always, you can find updated holdings and activity details at Dataroma.

Berkshire Hathaway hints at new purchase, ups Charter stake (Reuters)

Warren Buffett's Berkshire Hathaway Inc on Friday said it boosted its stake in cable TV operator Charter Communications Corp, and signaled it may have another large investment planned after agreeing to buy Precision Castparts Corp in its largest-ever purchase. [...]

Berkshire kept some details about its holdings confidential. The SEC sometimes lets the Omaha, Nebraska-based company delay disclosures of new stakes so Buffett can build them quietly, rather than have investors piggyback on him before he finishes. [...]

Berkshire reported lower stakes in conglomerate Chicago Bridge & Iron Co, media company Viacom Inc and Wabco Holdings Inc, which sells braking and suspension systems for commercial vehicles.

Warren Buffett’s Berkshire Hathaway Sells Off Shares in Phillips 66, National Oilwell Varco (WSJ Moneybeat)

Warren Buffett’s Berkshire Hathaway Inc. sold off its shares in Phillips 66 and National Oilwell Varco Inc. in the second quarter, as it continued to cut its positions in energy companies amid a global supply glut that has sent crude prices into a tail spin.

Berkshire had already sold most of its stake in National Oilwell Varco in the first quarter, when it slightly raised its Phillips 66 holdings. [...]

Berkshire’s only new stake in the quarter was a 20 million share investment in auto-paint maker Axalta Coating Systems Ltd., which Berkshire bought from Carlyle Group LP for $28 a share.

Buffett’s Precision Castparts Deal Will Boost Berkshire Hathaway’s Value (Barron's)

Precision Castparts, a once fast-growing supplier to the airline industry, looks to be a good—not great—deal for Berkshire. Its profits have been pressured due to the company’s exposure to the energy industry. The shares were down 20% year to date before the Berkshire announcement, although the company has been a huge winner under CEO Mark Donegan. [...]

Berkshire is paying $235 a share, or about 19 times Precision’s earnings for the fiscal year ending March 2016. That implies an earnings “yield” of 5.5%, well above the near-zero yield Berkshire has been earning on its cash, which totaled $60 billion on June 30. Berkshire’s return could be closer to 7% initially because it will issue about $10 billion of low-cost debt to finance the deal.

After hacking scheme, it's time to rethink how companies use wire services (PR Week)

Business Wire sent an e-mail to its clients with a letter from CEO Cathy Baron Tamraz. It began, "We understand your concerns surrounding this week’s federal indictment of a global hacking…We would like to take this opportunity to provide you with the story behind the headlines."

The letter explained that government investigators asked Business Wire about fewer than 85 releases, and pointed out that no examples listed in the indictments and the SEC complaint were Business Wire releases.

"Despite our extreme vigilance, today's reality is that no one today is immune from hacking," it continued. "We want to reassure you that Business Wire’s systems are safe and secure. We continue to work closely with a leading cybersecurity firm to ensure that they remain so."

Warren Buffett's Berkshire Hathaway gets special ASX treatment in IAG deal (Sydney Morning Herald)

The Australian Securities Exchange has granted billionaire Warren Buffett's Berkshire Hathaway poll position in any future capital raisings by Insurance Australia Group, which has raised the hackles of some investors, and proxy adviser group Ownership Matters.

IAG, which has one of the biggest shareholder bases of companies listed on the local exchange, was granted a waiver that would permit Berkshire anti-dilution rights for its shares in the insurer.

The initial deal between IAG and Berkshire, which saw the insurance giant sign away 20 per cent of its business to the US group, was announced in June but not many investors were aware of the waiver. [...]

Sure, but what does that mean in layman's terms?

The hidden catch to Berkshire Hathaway’s Insurance Australia Group Ltd investment (Fool Australia)

If IAG were to issue say, one new share for every thirty held, this would normally dilute NICO who currently holds one share in every twenty (5%) on issue. However, as it has this anti-dilution protection, NICO will be entitled to buy one share for every twenty it holds.

If NICO happened to hold 10%, it would be entitled to 10% of the new shares to be issued.

Buffett-Backed Kraft Heinz Cuts 2,500 Jobs as Hees Targets Costs (Bloomberg)

Kraft Heinz Co., the food company that counts Warren Buffett’s Berkshire Hathaway Inc. as its largest shareholder, is eliminating about 2,500 jobs in the U.S. and Canada under the new management. [...]

Kraft Foods and H.J. Heinz merged in July in a deal orchestrated by Buffett and 3G Capital, which jointly controlled the ketchup company. 3G’s Bernardo Hees, who is now running the combined foodmaker, cut more than 7,000 jobs in 20 months after taking over at Heinz. Berkshire Vice Chairman Charles Munger has endorsed the job cuts, saying such measures are essential to a productive capitalist system.

The alternative to reducing staff is “what happened in Russia,” Munger said at Buffett’s annual meeting in May. “The whole damn economy didn’t work.”

How Much Is Warren Buffett’s $5 Billion Investment in Bank of America Worth Today? (Fool)

At the low point of Bank of America's post-financial crisis struggles, Warren Buffett became its biggest advocate by investing $5 billion of Berkshire Hathaway's money into the nation's second biggest bank by assets. [...]

When you include the $5 billion in preferred stock, Berkshire Hathaway's investment in Bank of America is worth a total of $12.2 billion. That equates to a 144% gain in four years -- 168% if you also account for the roughly $1.2 billion in cumulative dividend payments on its preferred stock.

How rich Warren Buffett was at your age (Business Insider)

By age 43, Buffett's personal net worth was at a high of $34 million. He used some of this capital the year prior to purchase See's Candies for $25 million, reports The Motley Fool, and it became an investment that's still profitable in 2015. But, the mid-1970s proved to be a rough period for Berkshire. By 1974, its decreasing share price lowered Buffett's net worth to $19 million when he reached 44, reports Dividend.

Never one to let his savvy investment skills fall by the wayside, Buffett was able to recover financially. By the end of the decade, he had increased his net worth to $67 million at age 47. By the close of the 1970s, the median U.S. household income was $16,530.

Berkshire News Briefs - 8/12/15

Warren Buffett Cuts Berkshire Hathaway's Biggest Ever Deal In $37B Precision Castparts Buy (Forbes)

On Monday morning, Berkshire confirmed it would buy aerospace components giant Precision Castparts (PCP) for $235 a share in cash, valuing it at $37.2 billion, when including the Portland, Oregon based company’s near $5 billion in debt. The deal comes at a 20% premium to Precision Castparts closing share price on Friday, however, it amounts to a slight discount from the company’s stock price at the beginning of 2015.

For Berkshire Hathaway, the deal is a major bet on U.S. aerospace and manufacturing, bringing a top parts supplier to defense and aviation companies around the world into the coffers of Buffett’s conglomerate. With over $10 billion in annual sales, Precision Castparts would instantly become one of Berkshire’s largest operating subsidiaries. The company reported a $1.5 billion profit in 2014, slightly less than the profits Berkshire’s energy unit generated last year. [...]

Berkshire Gets Dealmaker CEO in Precision Castparts Purchase (Bloomberg)

Mark Donegan, chairman and chief executive officer of Precision Castparts Corp., made more than a few deals of his own before becoming a target of billionaire Warren Buffett’s Berkshire Hathaway Inc.

Precision Castparts, a maker of equipment for the aerospace and energy industries, has completed at least 30 acquisitions since Donegan took over as CEO in 2002. [...]

Donegan could be an investment in the future for Buffett: The CEO -- typically loath to talk to the press -- was 58 when Precision Castparts filed its proxy in July. Berkshire likes to buy high-quality management teams that can help direct its vast cash pile, said Joel Levington, a senior credit analyst with Bloomberg Intelligence. [...]

Berkshire Profit Falls, Missing Estimates on Insurance Slump (Bloomberg)

Warren Buffett’s Berkshire Hathaway Inc. posted second-quarter profit that missed analysts’ estimates because of higher claims costs at insurance units including Geico.

Net income dropped 37 percent to $4.01 billion, or $2,442 a share, from $6.4 billion, or $3,889, a year earlier, the Omaha, Nebraska-based company said Friday in a statement. Operating earnings, which exclude some investment results, were $2,367 a share, compared with the average $3,038 estimate of three analysts surveyed by Bloomberg.

Why Earnings Fell at Berkshire Hathaway, but Book Value Rises in 2015 (24/7 Wall Street)

Berkshire Hathaway pointed out that, since the beginning of the year, Berkshire’s shareholder equity has increased $5.9 billion and its book value per Class A equivalent share was up by 2.4% to $149,735 per share. The company’s insurance float at June 30, 2015 was $85.1 billion. For a comparison to the first quarter book value, Berkshire Hathaway’s book value per Class A equivalent share had increased by 0.5% since the end of 2014 to $146,963 as of March 31, 2015. [...]

Operating earnings came to $3.89 billion in the second quarter, down from $4.33 billion a year ago. Gains from investments fell to $236 million, from $1.96 billion a year ago. [...]

If you add up the investment income and the operating income from the conglomerate structure, Berkshire Hathaway made $4.01 billion in net earnings, down from $6.395 billion a year earlier. [...]

Warren Buffett's Berkshire Hathaway loses millions on Australian storms (Australian Financial Review)

US billionaire Warren Buffett's Berkshire Hathaway company pointed to reinsurance losses in Australia as it explained a 37 per cent drop in second-quarter profit.

The company's American reinsurance business lost $US115 million ($155 million) directly because of storm damage on the Australian east coast in April, the company disclosed in a regulatory filing in the US. [...]

Symetra’s Deal Enriches Berkshire Hathaway (WSJ MoneyBeat)

Two insurers most people have never heard of just agreed to a deal, and Warren Buffett’s company is another $144 million richer.

U.S. life insurance company Symetra Financial Corp. said Tuesday it agreed to sell itself to Sumitomo Life Insurance Co. for about $3.8 billion in the latest large acquisition in the U.S. by a Japanese life insurer.

Among Symetra’s biggest shareholders: Mr. Buffett’s Berkshire Hathaway Inc. [...]

But Berkshire’s Symetra’s ownership, while hardly a secret, isn’t as widely known as most of its other equity positions. The stock doesn’t show up in in Berkshire’s most widely watched quarterly disclosures. Instead, it’s listed in the holdings for a Berkshire reinsurance unit, General Reinsurance Corp.

U.S. Identifies Insider Trading Ring With Ukraine Hackers (Bloomberg)

Exposing a new front in cybercrime, U.S. authorities broke up an alleged insider trading ring that relied on computer hackers to pilfer corporate press announcements and then profited by trading on the sensitive information before it became public. [...]

The suspected hackers, who are thought to be in Ukraine, allegedly infiltrated the computer servers of PRNewswire Association LLC, Marketwired and Business Wire, a unit of Warren Buffett’s Berkshire Hathaway Inc., over a five-year period.

They siphoned more than 150,000 press releases including corporate data on earnings that could be used to anticipate stock market moves and make profitable trades, the U.S. said. [...]

Can the Insurance Industry Survive Driverless Cars? (Bloomberg)

Auto insurance has long been a lucrative business. The industry collected about $195 billion in premiums last year from U.S. drivers. New customers are the source of so much profit that Geico alone spends more than $1 billion a year on ads to pitch its policies with a talking lizard and other characters. Yet even Warren Buffett, whose company, Berkshire Hathaway, owns Geico, is talking about the long-term risks to the business model. "If you could come up with anything involved in driving that cut accidents by 30 percent, 40 percent, 50 percent, that would be wonderful," he said at a conference in March. "But we would not be holding a party at our insurance company."

International Dairy Queen Opens First Location in Kuwait (Business Wire)

The Dairy Queen® system, part of Berkshire Hathaway, has opened a new DQ Grill & Chill® restaurant at the Marina Mall in Salmiya, Kuwait. The opening of this location makes Kuwait the 27th country outside the U.S. and Canada with a DQ® presence. [...]

Durra Khaled for Foodstuffs Co., a subsidiary of KMGC, has signed a long-term franchise agreement with the Dairy Queen system and plans to develop more than 20 DQ Grill & Chill restaurants and DQ Treat stores throughout Kuwait over the next five years.