Berkshire eases rules on buying back its stock
Warren Buffett can now put a dent in Berkshire Hathaway’s huge stockpile of cash.
On Tuesday, his company eliminated a restriction that capped its ability to buy back its own stock, allowing the legendary 87-year-old billionaire investor to deploy more of the conglomerate’s $108 billion of cash and equivalents.
Under the new policy, stock buybacks can be made any time that Buf- fett and Berkshire Vice Chairman Charlie Munger believe that the repurchase price is “below Berkshire’s intrinsic value, conservatively determined.”
Berkshire’s Class A shares closed at $288,500 Tuesday – roughly 1.37 times their $211,184 book value per share as of March 31.
Berkshire’s previous program provided that the price paid for repurchases would not exceed 1.2 times book value of the shares, or a 20 percent premium.
The company said it will not “initiate any share repurchases under the amended program” until it publicly releases its second-quarter results, which are scheduled after the market closes on Aug. 3.
Buffett foreshadowed such a move in May at Berkshire’s annual shareholder meeting in Omaha, Nebraska, stating “a stock buyback is more likely” than the company paying a special dividend to its investors.
The new, looser buyback parameters are a sign that Berkshire’s acquisition strategy isn’t bearing fruit, said Cathy Seifert, an analyst at CFRA, a Wall Street research firm.
“While we share the market’s enthusiasm for this change,” Seifert wrote, “we note this shift in capital allocation also reflects an acquisition strategy that has not yielded the results Berkshire desired.”
Buffett’s last megadeal was in 2015, when he paid more than $30 billion for Precision Castparts, a maker of aerospace and other parts.
Berkshire Hathaway owns roughly five dozen businesses in industries from railroads and retail to auto insurance and industrial manufacturers.
Buffett’s stable of well-known brands include ice cream retailer Dairy Queen, battery-maker Duracell and auto insurer Geico.
Buffett himself has said that high market prices have kept him from using his cash hoard to acquire big companies that could boost Berkshire’s earnings power and make better use of low-yielding cash.
“Berkshire’s goal is to substantially increase the earnings of its non-insurance group,” Buffett wrote in February in his annual letter to shareholders.
“For that to happen, we will need to make one or more huge acquisitions. Despite our recent drought of acquisitions, Charlie and I believe that from time to time Berkshire will have opportunities to make very large purchases,” he wrote.
Berkshire reported a rare net loss of $1.1 billion in the first three months of this year, but that was largely because of a new rule that requires it to report unrealized gains or losses in stock investments as net income.
This represented Berkshire’s first quarterly loss since 2009.
Contributing: Adam Shell