Stock Buybacks Coming For Berkshire Hathaway (BRK-A, BRK-B)

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Berkshire Hathaway Inc. (NYSE: BRK-A) saw its share break under $100,000.00 last week in its A-Shares.  Apparently Mr. Buffett thinks enough is enough.  The company’s board of directors has authorized the company to repurchase shares of its Class-A and Class-B common stock.  While the A-shares shares closed at $100,320.00, it appears that the real catalyst is that Berkshire’s stock traded under $100,000.00 during the stock market carnage of last week.

It now seems as though the ongoing plan of acquiring operations has competition with Berkshire’s own stock in a manner of speaking.

What is interesting is the terms that were set, but on a vague basis.  The report noted that no higher than a 10% premium over the then-current book value of the shares will be paid.  The company will use cash on hand but it will not engage in share repurchases which would take the consolidated cash equivalents under $20 billion. 

What is more interesting is that the buybacks are called “continuing indefinitely” and that “the amount of purchases will depend entirely upon the levels of cash available, the attractiveness of investment and business opportunities… and the intrinsic value.”

The company noted, “In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise. If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest.”

As you see with many buyback plans, Berkshire Hathaway said it may buy shares in the open market purchases or in privately negotiated transactions.  There is also the caveat thrown in that this announcement does not obligate the company into spending any cash at all for the buybacks. 

If you have followed Warren Buffett and his annual reports for long, he has hinted at buybacks and he has even hinted at dividends.  As most know, the company pays no dividend.

If you consider Buffett’s actions and Berkshire Hathaway’s actions in the past, this buyback news may be more symbolic than it is finite.  The company is still likely to keep reviewing acquisitions while it considers buybacks.

The company has always said it wanted to maintain $20 billion in liquidity, so that figure has not changed.  Buffett always said that book value was a better measurement of the company than earnings.  Now the company is putting its money where its mouth is.  At least somewhat.

At the end of last quarter, Berkshire Hathaway listed some $47.891 billion in cash before its most recent acquisitions and investments.  That takes the number down closer to $35 to $40 billion.  There is also a large bond portfolio, much of which is not likely long-dated.  This leaves plenty of capital room for Berkshire Hathaway to still make outside acquisitions while gradually repurchasing shares.

The news is having the impact that Mr. Buffett probably hoped for… The A-shares are up over 5% and back over the $105,000.00 level and the B-shares are up closer to 6% at $70.33.

JON C. OGG