How to in­ter­pret War­ren Buf­fett’s new AT&T

Financial Mirror (Cyprus) - - FRONT PAGE -

If there is one in­vestor who is the best known of the past few decades, it would have to be War­ren Buf­fett. This is why his Berk­shire Hath­away Inc. (NYSE: BRK-A) is so closely watched when it comes to port­fo­lio changes, in­vest­ments and ac­qui­si­tions. 24/7 Wall St. tracks the so-called Buf­fett hold­ings each quar­ter and as new changes are learned. It turns out that the most re­cent Berk­shire Hath­away hold­ings con­tained more changes than have been seen in some time.

What stood out to some in­vestors in the hold­ings as of Septem­ber 30, was a new stake listed in AT&T Inc. (NYSE: T) and a mas­sively larger stake in Kraft Heinz Co. (NASDAQ: KHC). That new Kraft Heinz stake was not grouped en­tirely in the eq­ui­ties amount pre­vi­ously of $106.1 bln from June 30 — and the to­tal eq­uity hold­ings for Septem­ber 30 was listed as a record of $127.4 bln.

The first thing that in­vestors need to con­sider about the new AT&T stake is that it should not really be con­sid­ered all that new. Berk­shire’s hold­ing of AT&T is ac­tu­ally tied to AT&T’s ac­qui­si­tion of DirecTV that was com­pleted this sum­mer.

It was more or less an un­known how the con­glom­er­ate’s port­fo­lio man­agers would ac­tu­ally treat AT&T’s shares on a post-merger ba­sis. Now the re­al­ity ap­pears to be that the DirecTV stake was at first a play on me­dia and monthly sub­scrip­tion ser­vices, which then may have ul­ti­mately be­come a cheaper way of own­ing AT&T rather than just buy­ing AT&T shares out­right. That would then come with yet more sub­scriber rev­enue ex­po­sure ahead and the most im­pres­sive div­i­dend of the largest com­pa­nies in Amer­ica. Had this not been the case, then logic would dic­tate that those AT&T shares would have been sold off in the open mar­ket over the course of the quar­ter.

The AT&T stake was listed as 59.32 mln shares as of Septem­ber 30. Berk­shire Hath­away’s stake in DirecTV in June was listed as the same stake of 31.35 mln shares, but this was af­ter the stake had been pre­vi­ously raised in prior pe­ri­ods. The for­mal merger terms were in cash and stock, as fol­lows: “As a DIRECTV share­holder, you are en­ti­tled to re­ceive for each share of DIRECTV com­mon stock an amount equal to $28.50 in cash, and 1.892 shares of AT&T com­mon stock, which rep­re­sents the ex­change ra­tio de­ter­mined per the terms of the trans­ac­tion. You may also re­ceive cash in lieu of a frac­tional share of stock based on a per share price of $35.14.”

When you mul­ti­ply the 31.35 mln DirecTV shares by the 1.982 ex­change ra­tio, with­out con­sid­er­ing the cash por­tion of the deal, you get just over 59.3 mln shares of the sur­viv­ing com­pany — and that matches the 59.32 mln shares. In short, Buf­fett took the cash but kept the sur­viv­ing shares in AT&T.

If you just looked at Mon­day’s head­lines around AT&T, you would have thought that Buf­fett and his newer port­fo­lio man­agers just ac­quired AT&T shares in the open mar­ket. That is not the case at all. Here are the main head­lines seen else­where on Mon­day morn­ing:

- AT&T (T) Stock Up as War­ren Buf­fet Adds to Port­fo­lio (TheStreet);

- War­ren Buf­fett adds AT&T to port­fo­lio, cuts stakes in Gold­man, Wal-Mart (Mar­ketWatch);

- War­ren Buf­fett Cuts Stake in Gold­man, Wal-Mart, Adds AT&T to Port­fo­lio, 13-F Says (Bar­ron’s); - AT&T and GM among Buf­fett’s Q3 adds (Seek­ing Al­pha); - Buf­fett’s Berk­shire Hath­away Shows New Stake in AT&T (T), Pares Wal-mart (WMT), Gold­man (GS) Po­si­tions — 13F (Street In­sider);

- Berk­shire Hath­away Takes New Stake in AT&T, With 59,320,756 Shares — 13F Fil­ing (Dow Jones).

An­other con­sid­er­a­tion here is that Ver­i­zon Com­mu­ni­ca­tions Inc. (NYSE: VZ) is also a cur­rent Buf­fett stock hold­ing. Ver­i­zon was the same stake at 15 mln shares, but that had been raised two quar­ters ago.

The new to­tal Berk­shire Hath­away hold­ings, based on Septem­ber 30 share prices, would value the new AT&T stake at roughly $1.9 bln and would value the Ver­i­zon stake at $645 mln or so.

It is no se­cret that Buf­fett loves div­i­dends. It is also now

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.