Berkshire shares top US$300K barrier

War chest swells to a US$109B cash mountain

NEW YORK • Berkshire Hathaway Inc. shares climbed the most in four months after the company signalled that investors may soon get their hands on part of a Us$109-billion mountain of cash that’s bedevilling Warren Buffett.

The firm’s board announced late Tuesday that it’s removing a cap on stock buybacks, giving the Berkshire chair and chief executive greater leeway to parcel out profits, rather than hunt for more acquisitions.

Buffett and vice-chair Charlie Munger can now make repurchases whenever they both believe the price “is below Berkshire’s intrinsic value, conservatively determined,” the company said.

Berkshire’s Class A shares advanced 5.14 per cent Wednesday, landing at US$303,210.

Berkshire for decades has favoured Buffett’s strategy of acquiring well-managed companies and stitching them into an ever-growing conglomerate. But in recent years, the massive company has turned out profit faster than it could redeploy the money. The war chest swelled past US$100 billion last year, prompting some diehard investors to wonder whether Buffett should just pay some out. Now he can.

“It’s a game-changer,” said David Rolfe, the chief investment officer at Wedgewood Partners, an investment manager that oversees US$4 billion, including Berkshire shares. Buffett could afford to spend in the “low tens of billions” of dollars on buybacks every year, Rolfe estimated.

The firm’s earlier repurchase program stipulated the price paid couldn’t be more than 20-per-cent above the current book value of shares. Book value is a measure of assets minus liabilities, which Buffett has called a useful — though understated — proxy of his conglomerate’s “intrinsic value,” or what it’s really worth.

Berkshire’s Class A shares closed Tuesday at US$288,500, or 37-per-cent higher than the firm’s book value at the end of the first quarter.

Buffett, 87, began a buyback program in 2011 after shunning repurchases for four decades. But opportunities to acquire shares remained scarce as the company initially prohibited purchases at stock prices above 110 per cent of book value. It raised the limit to 120 per cent in December 2012. Since then, some investors have viewed the threshold as a floor under the stock — keeping the price out of reach for buybacks.

Buffett had been toying with the idea of loosening the rules further, saying in a February interview with CNBC that the company might have to tweak the equation. He’s emphasized that he generally prefers to repurchase stock than issue a dividend.